wj washington update - ncpers washington update 01-23... · 2015-01-29 · williams & jensen...

January 23, 2015 Washington Update

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TAXES Obama’s State of the Union Address Features Tax Proposals Key Points:

President Barack Obama delivers State of the Union Address mentioning very little on tax proposals previously released by the White House fact sheet in some detail

White House Fact Sheet outlines a host of tax proposals to lower taxes for the middle class paid for with a fee on financial institutions and taxes on higher income earners

In advance of President Barack Obama’s State of the Union Address, the White House issued a fact sheet introducing proposals that lower taxes for lower and middle class families paid for with a fee on financial entities and taxes on higher income earners. The White House fact sheet lists the following tax proposals which

together will amount to $235 billion of lower and middle class tax cuts:

Tripling the child credit to $3,000 for children under 5 for families earning up to $120,000 income, which is phased out above that threshold;

Creating a new $500 second earner tax credit for families with both spouses working for families earning up to $120,000 income, which is phased out by $210,000 income;

Educational incentives including two

This Week in Congress

House – The House passed the “No Taxpayer Funding for Abortion and Abortion Insurance Full Disclosure Act of 2015” (H.R. 7) and the “Natural Gas Pipeline Permitting Reform Act” (H.R. 161.)

Senate – The Senate continued consideration of the “Keystone XL Pipeline Act” (S. 1). The “Department of Homeland Security Appropriations Act, 2015” (H.R. 240) was placed on the Legislative Calendar.

Next Week in Congress

House – The House is expected to consider the “Secure Our Borders First Act of 2015” (H.R. 399) and the “LNG Permitting Certainty and Transparency Act” (H.R. 351).

Senate – The Senate will resume consideration of the “Keystone XL Pipeline Act” (S.1) and will vote on the motion to invoke cloture on the Murkowski Substitute Amendment. Additional roll call votes on amendments are possible.

Table of Contents Taxes 1 Financial Services 5 Energy & Environment 10 Defense 12 Health 20 Transportation & Infrastructure 21 Technology 24

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Williams & Jensen – Washington Update January 23, 2015

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years of free community college;

Consolidate education savings incentives into one vehicle and redirect the savings into an American Opportunity Tax Credit that provides up to $2,500 each year over five years;

Roll back expanded tax cuts for 529 education savings plans that were enacted in 2001 for new contributions;

Repeal tax incentives going forward for the Coverdell education savings program;

Eliminating taxation of some student loan debt that is forgiven;

Auto-IRA for those without access to a workplace retirement plan in an IRA;

Provide tax cuts for auto-IRA adoption, as well as for businesses that choose to offer employer plans or switch to auto-enrollment; and

Expand the Earned Income Tax Credit. To fund the above proposals, the President would raise a total of $320 billion with:

An increase in the top capital gains and dividend tax rates to 28 percent;

Tax on capital gains at death and eliminate the step up in basis to beneficiary (with certain exclusions);

A new 7 basis point financial fee on total “liabilities;”

Limit contributions to retirement accounts to about $3.4 million;

Eliminate the ability to set aside $5,000 pre-tax in a flexible spending arrangement (cafeteria or 125 plans) for child care; and

Eliminate the deductibility of student loan interest.

Notably, the President did not discuss tax issues in depth in the speech, touching lightly

on a couple issues from the fact sheet, and he did not mention “business” only tax reform during his speech. However, Secretary of the Treasury Jacob Lew addressed it the following morning in a speech at the Brookings Institution (see article below.) While some of these tax proposals were briefly mentioned in the President’s speech, it appears much of the substantive detail will be embodied in his FY 2016 budget request to be issued February 2. Lew Renews Call for Business Tax Reform in a Speech at the Brookings Institution Key Points:

The Secretary of the Treasury reiterates push for business tax reform and addresses other priorities including Trade Promotion Authority and the Trans-Pacific Partnership

Following the President’s State of the Union Address on January 20, Secretary of the Treasury spoke at the Brookings Institution on January 21 where he renewed the Administration’s push for “business” tax

Upcoming Dates January 26, 2015: CBO releases Budget and Economic Outlook February 2, 2015: Administration Submits FY 2016 budget request February 27, 2015: CR for FY 2015 DHS appropriations expires March 15, 2015: Debt limit suspension expires March 31, 2015: SGR patch expires (aka Doc Fix) May 2015: Highway Trust Fund patch and MAP-21 extension expires June 30, 2015: Export-Import Bank reauthorization expires September 30, 2015: FAA reauthorization expires and FY 2015 ends






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reform with the ultimate goal of lower rates and a more competitive system. He commented that Democrats and Republicans remain far apart on how to overhaul the individual side of the tax code. Lew cited the President’s Framework for Business Tax Reform issued in 2012 that included a 28% corporate rate as well as other broad outlined changes. Addressing tax extenders as part of potential reform, Lew said that while some should be made permanent, specifically mentioning the New Markets Tax Credit and the research and development tax credit, the cost of doing so should be offset. He also reiterated the Democratic position that business tax extenders cannot be permanently extended without also extending the Earned Income Tax Credit (EITC,) the child tax credit, and college credits for individuals. Lew also touched on the new House rule that adopted “dynamic” budget scoring for major legislation, arguing that calculating the budget impact of legislation based on potential economic growth is an uncertain model. Lew also spoke at length about the Administration’s continued efforts to curb the corporate inversions trend and he renewed his call on Congress to enact legislation to this effect. Finally, he addressed Trade Promotion Authority as well as the Trans-Pacific Partnership, emphasizing the need to work with Congress to accomplish them both. Levin Reintroduces Anti-Inversion Legislation Key Points:

The House Ways and Means Committee Ranking Member reintroduces anti-inversion legislation along with other Congressional Democrats

This week House Ways and Means Committee Ranking Member Sander Levin (D-MI) and Representative Lloyd Doggett (D-TX) introduced the “Stop Corporate Inversions Act of 2015,” legislation to tighten restrictions on corporate tax inversions, and limit the ability of American companies to lower their U.S. taxes by combining with a smaller foreign business and moving their tax address overseas. Senators Dick Durbin (D-IL) and Jack Reed (D-RI) introduced a companion bill in the Senate. This is a re-introduction of the “Stop Corporate Inversions Act of 2014” and is identical to that legislation which was initially introduced on May 20, 2014 in both the Senate and the House by retired Senator Carl Levin (D-MI), former Chairman of the Senate Permanent Subcommittee on Investigations. The Joint Committee on Taxation recently re-estimated Ranking Member Sander Levin’s bill to raise $34 billion over 10 years. Senate Finance Committee Chairman Outlines the Committee’s 2015 Policy Agenda Key Points:

Senator Orrin Hatch (R-UT) lays out Committee’s 2015 policy agenda including tax reform, entitlement and healthcare reform, we well as Trade Promotion Authority

This week, Senate Finance Committee Chairman Orrin Hatch (R-UT) unveiled the Committee’s 2015 policy agenda and emphasized he is committed to making the plan a reality. The agenda includes tax reform as a top priority for the Committee. Other items listed on the agenda were healthcare reform, entitlement reforms, pension reform, and the debt limit. With respect to the use of budget reconciliation, Hatch suggested he


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prefers to work towards bipartisan solutions on the Committee, especially in healthcare and tax reform. However, noted that he cannot take any options off the table when it comes to the process of moving legislation. With respect to tax reform, Hatch outlined seven essential guiding principles as follows:

Growing the economy;

Fairness;

Simplicity;

Permanence;

Competitiveness;

Encouraging savings and investment; and

Revenue neutrality. During his speech, Hatch also recognized the recent wave of inversions by U.S. companies as an ongoing problem and expressed confidence that the newly developed Senate Finance Committee tax reform working groups will find real options to solve the issue though comprehensive tax reform. Hatch also spoke at length on his trade agenda, expressing strong support for renewing Trade Promotion Authority (TPA). Specifically, Hatch said that renewing TPA is essential for the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership to succeed. He challenged assertions that TPA gives too much authority to the President, saying that without TPA, Congress cannot insert itself and its priorities into trade negotiations. Hatch asserted that he is working with Ranking Member Ron Wyden (D-OR) and House Ways and Means Committee Chairman Paul Ryan (R-WI) to see whether any improvements can be made to the TPA bill he introduced last Congress.

Portman Introduces Dynamic Budget Scoring Measure Key Points:

Senator Rob Portman introduces dynamic budget scoring legislation

This week Senator Rob Portman (R-OH) a Member of the Senate Budget and Finance Committees, introduced the “Accurate Budgeting Act,” a bill that would require the Joint Committee on Taxation (JCT) to release a “dynamic” score of all major tax legislation. Pursuant to the bill the dynamic scores would be released for information and advisory purposes only and the current “static” estimates would remain the official estimates. Portman introduced identical legislation last Congress. Specifically, in March 2013, Portman’s dynamic scoring amendment was adopted as part of the Senate’s FY 2014 budget resolution but was later excluded from the final bill. The amendment required that the Congressional Budget Office provide a macro-dynamic estimate for any increases or decreases in revenue larger than $5 billion in any fiscal year. Upcoming Hearings and Events January 27 U.S. Trade Agenda: The House Ways and Means Committee will hold a full Committee hearing titled “U.S. Trade Policy Agenda.” Witnesses are TBA. Trade Policy Agenda: The Senate Finance Committee will hold a full Committee hearing titled “President Obama's 2015 Trade Policy Agenda.” Witnesses are TBA. CBO Budget and Economic Forecast: The House Budget Committee will hold a full


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Committee hearing titled “The Congressional Budget Office’s Budget and Economic Outlook.” Scheduled witnesses include Douglas W. Elmendorf, Director, Congressional Budget Office January 28 CBO Budget and Economic Forecast: The Senate Budget Committee will hold a full Committee hearing on the Congressional Budget Office and the economic forecast for the next 10 years. For more information about tax issues you may email or call Christopher Hatcher at 202-659-8201. Tess Illos contributed to this report. FINANCIAL SERVICES FSOC Meets to Discuss the Nonbank Designation Process, Benchmark Rates Key Points:

Financial Stability Oversight Council (FSOC) staff detailed their recommendations for improving the designation process for nonbank financial companies. Treasury Secretary Lew expressed support for the recommendations and said he hopes to formalize them soon, possibly at the Council’s next meeting.

Federal Reserve staff provided an update on benchmark rate efforts.

FSOC closed meeting discussions included developments in foreign exchange markets, leveraged lending, the FSOC 2015 annual report, and the MetLife lawsuit challenging FSOC’s designation of the company as a systemically important financial institution.

On January 21, the Financial Stability Oversight Council (FSOC) held an open meeting, which included discussions on benchmark reform efforts and the Council’s process for

considering nonbank financial companies for potential designation. At the meeting, FSOC staff detailed their recommendations for improving the designation process for nonbank financial companies. Secretary of the Treasury Jacob Lew expressed support for the recommendations and said he hopes to formalize them soon, possibly at the Council’s next meeting. No date was announced for the next FSOC open meeting. The recommendations offered by the FSOC staff included:

The Council should notify firms when they are in Stage II of the designation process, rather than Stage III;

If a company in Stage II or Stage III of the designation process publicly announces their status, the Council should confirm it if requested by third party;

The Council should disclose more information on the designation process to the public, while protecting confidential firm information;

The Council should include more information on their designation activities in their Annual Report;

The Council should publish further details on Stage I thresholds and how they are calculated;

Firms should be allowed to meet with FSOC staff at the outset of their annual review to discuss the scope and process of the review;

If a company contests their designation in their annual review the Council should vote and provide company with a written explanation of their decision, if they choose not to rescind the designation; and

Designated firms should have an opportunity to have an oral hearing to


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contest their designation in front of the full Council every five years.

Federal Reserve Office of Financial Stability Policy and Research Assistant Director John Schindler provided the Council with an update on efforts related to benchmark rate risk. He noted the Council’s 2013 Annual Report recommended that U.S. regulators cooperate with international regulators to promptly identify alternative benchmarks following the June 2012 revelation of the manipulation of LIBOR. Schindler said the Financial Stability Board (FSB) Official Sector Steering Group (OSSG) recommended creating multiple reference rates. He noted that last year the administration of LIBOR was transferred from the British Bankers Association (BBA) to ICE Benchmark Administration (IBA), which is working to strengthen LIBOR. He stated IBA has advocated for: (1) using a transaction-based approach to calculating LIBOR; (2) including more banks in the calculation of LIBOR; (3) widening the scope of transactions; and (4) increasing the timeframe in which transactions are considered. He said the Federal Reserve is sponsoring the Alternative Reference Rate Committee (ARRC), which has four objectives: (1) identify best practices and rates that meet them; (2) develop an adoption plan: (3) develop a timeline for adoption; and (4) identify best practices for contract robustness. The FSOC readout also explained that during the closed portion of the meeting, FSOC received updates and presentations on: (a) “recent developments in foreign exchange markets”; (b) “speculative-grade debt markets, including leveraged lending”; (c) “potential topics for the Council’s 2015 annual report”; and (d) “the lawsuit brought by MetLife, Inc. challenging the Council’s determination” that the company be designated a systemically important financial institution.

House Financial Services Committee Announces Subcommittee Members Key Point:

The House Financial Services Committee Democrats announce new leadership and membership for the Committee’s Subcommittees.

On January 21, House Financial Services Committee Ranking Member Maxine Waters (D-CA) announced the Democrat subcommittee assignments for the 114th Congress. The new Ranking Members are as follows:

Carolyn B. Maloney (D-NY), Capital Markets and Government-Sponsored Enterprises

Wm. “Lacy” Clay (D-MO), Financial Institutions and Consumer Credit

Emanuel Cleaver (D-MO), Housing and Insurance

Gwen Moore (D-WI), Monetary Policy and Trade

Al Green (D-TX), Oversight and Investigations

Last week, House Financial Services Committee Chair Jeb Hensarling (R-TX) announced the Republican Subcommittee assignments for the 114th Congress. The following leadership positions were announced:

Full Committee Vice Chairman: Patrick McHenry (R-NC)

Republican Whip: Steve Stivers (R-OH)

Republican Deputy Whip: Ann Wagner (R-MO)

Chairman of Subcommittee on Capital Markets and Government Sponsored Enterprises: Scott Garrett (R-NJ)


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Chairman of Subcommittee on Financial Institutions and Consumer Credit: Randy Neugebauer (R-TX)

Chairman of Subcommittee on Housing and Insurance: Blaine Luetkemeyer (R-MO)

Chairman of Subcommittee on Monetary Policy and Trade: Bill Huizenga (R-MI)

Chairman of Subcommittee on Oversight and Investigations: Sean Duffy (R-WI)

House Financial Services Approves Oversight Plan for the 114th Congress Key Point:

House Financial Services approves Oversight Plan for the 114th Congress. Areas of focus include Dodd-Frank Act implementation oversight, financial institutions and consumer credit, capital markets issues, government sponsored enterprises, housing, insurance, and monetary policy and trade.

On January 21, the House Financial Services Committee held a markup of the Committee’s Oversight Plan for the 114th Congress. The Committee favorably reported the Oversight Plan by a voice vote. Chairman Jeb Hensarling (R-TX) suggested the Plan was designed to be a “middle of the fairway” approach but stressed that the Committee will take their oversight responsibilities seriously. Ranking Member Maxine Waters (D-CA) stated the Plan is “non-controversial” and suggested the Committee should not be focused on overturning the “advancements” made in the Dodd-Frank Act (DFA). Among other issues, the Committee will conduct “significant oversight” of the Financial Stability Oversight Council (FSOC) and will look at the governance structure and funding of the Consumer Financial Protection Bureau (CFPB).

Additional areas of oversight focus include but are not limited to:

Examination of Dodd-Frank Act (DFA) implementation issues, including assessing the FSOC, the Office of Financial Research (OFR), the impacts of the Volcker Rule and “Too Big to Fail”;

Financial institutions and consumer credit issues, including the Bureau of Consumer Financial Protection (CFPB), capital standards and Basel III, mortgage rules, community financial institutions, regulatory burden reduction, credit scores and credit reports, access to financial services, Operation Choke Point, lending discrimination, security of personally identifiable information, payment system innovations, payment cards, money laundering and terrorist financing, and related issues;

Capital markets issues, including oversight of the Securities and Exchange Commission, JOBS Act implementation, derivatives rules, credit rating agencies, the regulation and oversight of broker-dealers and investment advisers, self-regulatory organizations (SROs), equity market structure and fixed income market structure, compensation practices, Securities Investor Protection Corporation (SIPC), advisers to private funds, securitization, covered bonds, the Municipal Securities Rulemaking Board (MSRB), Financial Accounting Standards Board (FASB) and Government Accounting Standards Board (GASB), securities litigation and arbitration, and business continuity planning;


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Government Sponsored Enterprises, including Fannie Mae and Freddie Mac, the Federal Housing Finance Agency, and the Federal Home Loan Bank System;

Housing, including housing programs, the Federal Housing Administration, foreclosure mitigation initiatives, and settlement procedures;

Insurance issues, including the National Flood Insurance Program (NFIP), the Terrorism Risk Insurance Program, the Federal Insurance Office, and the impact of the DFA on the insurance sector;

Monetary policy and trade issues, including the Federal Reserve System, Defense Production Act (DPA), Committee on Foreign Investment in the United States (CFIUS), economic sanctions, the International Monetary Fund (IMF) and the multilateral development banks, the Export-Import Bank (expires on June 30, 2015), and international trade.

FDIC Approves Proposal for Revise Definitions in Regulatory Capital and Liquidity Coverage Rules Key Point:

FDIC approves a proposal to revise the definition of qualifying master netting agreement in the Regulatory Capital Rules ad Liquidity Coverage Ratio.

On January 21, the Federal Deposit Insurance Corporation (FDIC) Board at its open meeting voted 4 to 1 to approve a Notice of Proposed Rulemaking (NPR) to revise the definition of qualifying master netting agreement and related definitions in the Regulatory Capital Rules and Liquidity Coverage Ratio. In December, the

Federal Reserve and the Office of the Comptroller of the Currency (OCC) approved an interim final rule “to ensure that the treatment of over-the-counter (OTC) derivatives, eligible margin loans, and repo-style transactions under the two agencies’ regulatory capital and liquidity coverage ratio rules would be unaffected by the implementation of certain foreign special resolution regimes for financial companies or by a banking organization’s adherence to the International Swaps and Derivatives Association’s (ISDA) Resolution Stay Protocol.” The NPR approved by the FDIC is substantially similar to the interim final rule issued by the other agencies. OCC Director Thomas Curry stated that he was “not in a position” to vote for the proposal due to the fact that the Federal Reserve and OCC already issued an interim final rule on this issue. He expressed his hope that the agencies can implement the same policies. Senate Banking Committee Leadership Announced Key Points:

Shelby announces Subcommittee Chairs

On January 22, Senate Banking Committee Chairman Richard Shelby (R-AL) announced the subcommittee chairmen and Republican subcommittee membership for the new Congress. The subcommittee chairmen include:

Subcommittee on Securities, Insurance, and Investment – Chairman Mike Crapo (R-ID)

Subcommittee on Financial Institutions and Consumer Protection – Chairman Patrick Toomey (R-PA)


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Subcommittee on Housing, Transportation, and Community Development – Chairman Tim Scott (R-SC)

Subcommittee on Economic Policy – Chairman Dean Heller (R-NV)

Subcommittee on National Security and International Trade and Finance – Chairman Mark Kirk (R-IL)

Upcoming Hearings and Events January 27 Iran Sanctions: The Senate Banking Committee will hold a hearing entitled “Perspectives on the Strategic Necessity of Iran Sanctions.” Housing Finance: The House Financial Services Committee will hold a hearing entitled “Sustainable Housing Finance: An Update from the Director of the Federal Housing Finance Agency.” FHFA Director Mel Watt is scheduled to testify at the hearing. Data Breach Legislation: The House Committee on Energy and Commerce’s Subcommittee on Commerce, Manufacturing and Trade will hold a hearing entitled, “What are the Elements of Sound Data Breach Legislation?” Cybersecurity: The House Committee on Science, Space, and Technology’s Subcommittee on Research and Technology will hold a hearing entitled, “The Expanding Cyber Threat”. Witnesses will include: Cheri McGuire, Symantec Corporation; Dr. James Kurose, Computer and Information Science and Engineering Directorate, National Science Foundation; Dr. Charles Romine, Information Technology Laboratory, National Institute of Standards and Technology; Dr. Eric Fischer, Senior Specialist in Science and Technology,

Congressional Research Service; and Dr. Dean Garfield, President and CEO, Information Technology Industry Council. January 28 Financial Exploitation of Seniors: The Senate Special Committee on Aging will hold a hearing entitled, “Broken Trust: Combating Financial Exploitation of Vulnerable Seniors”. Cybersecurity: The Senate Homeland Security and Governmental Affairs Committee will hold a hearing entitled, “Protecting America from Cyber Attacks: The Importance of Information Sharing”. January 29 Iran Sanctions: The Senate Banking Committee will meet in an executive session to mark-up legislation entitled the “Nuclear Weapon Free Iran Act of 2015.” February 10 Federal Advisory Committee on Insurance: The Department of the Treasury’s Federal Advisory Committee on Insurance will convene a meeting on Tuesday, February 10, 2015 from 1 to 5 p.m. In this meeting, the Federal Advisory Committee on Insurance will discuss retirement security, the Terrorism Risk Insurance Program, and the evolving insurance issues related to ride-sharing companies. The Committee will also receive updates from three subcommittees. February 12 Investor Advisory Committee Meeting: The Securities and Exchange Commission Investor Advisory Committee will hold a public meeting on Thursday, February 12, 2015 from 10 a.m. until 4 p.m. The agenda for the meeting includes: remarks from Commissioners; a recommendation of the Market Structure subcommittee on shortening the trade






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settlement cycle; a discussion of proxy access; an update on the rule proposal of the Financial Industry Regulatory Authority (“FINRA”) regarding implementation of the Comprehensive Automated Risk Data System; an update on Municipal Securities Rulemaking Board and FINRA proposals for improved disclosures for same- day, retail-size principal transactions in fixed income securities; and nonpublic subcommittee meetings.

For more information about financial services issues you may email or call Joel Oswald at 202-659-8201. Rebecca Konst and Alex Barcham contributed to the articles. ENERGY AND ENVIRONMENT Senate Continues to Debate of Keystone XL Legislation Key Points:

The Senate spent this week debating the “Keystone XL Pipeline Act”, voting on two dozen amendments overall.

Senators continued to file a range of amendments to the bill addressing energy and other issues.

While the Senate is expected to pass the legislation, and with the House send a final bill to the President, the White House has threatened a veto.

The Senate concluded voting for the week late Thursday night, disposing of a number of amendments to the “Keystone XL Pipeline Act” (S. 1). The legislation would authorize construction of TransCanada’s Keystone XL Pipeline across the U.S.-Canadian border. So far in debating the legislation, the Senate has acted on the following amendments:

Exports from Keystone XL: The Senate tabled an amendment offered by

Senator Ed Markey (D-MA)(SA 13), which would have prohibited exports of the oil transported by the Keystone XL pipeline, as well as refined products produced from that oil, by a 57 to 42 vote.

Use of Domestic Steel in Keystone XL: The Senate tabled an amendment offered by Senator Al Franken (D-MN)(SA 17), which would have required the use of U.S.-produced steel in construction of the Keystone XL Pipeline, by a 53 to 46 vote.

Energy Efficiency: The Senate approved an amendment offered by Senator Rob Portman (R-OH), “The Energy Efficiency Improvement Act of 2015” (SA 3), by a 94 to 5 vote.

Endangered Species Act: The Senate rejected an amendment offered by Senator Mike Lee (R-UT) (SA 33), on Endangered Species Act legal fees, by a 54-45 vote (60 votes needed).

Petroleum Coke: The Senate rejected an amendment offered by Senator Richard Durbin (D-IL) (SA 69), requiring federal regulation of petroleum coke, by a 41-58 vote (60 votes needed).

Coal Refuse: The Senate rejected an amendment offered by Senator Patrick Toomey (R-PA) (SA 41) on energy from coal refuse by a 54-45 vote (60 votes needed).

Climate Change: The Senate adopted an amendment offered by Senator Sheldon Whitehouse (D-RI)(SA 29), expressing the Sense of the Senate that climate change is real, by a 98-1 vote.

Keystone XL Environmental Impact Statement: The Senate rejected an amendment offered by Senator John Hoeven (R-ND)(SA 87), expressing the



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Senate of Congress agreeing with the findings of the State Department’s Final Supplemental Environmental Impact Statement on the Keystone XL Pipeline, by a 59-40 vote (60 votes needed).

Climate Change: The Senate rejected an amendment offered by Senator Brian Schatz (D-HI) (SA 58), expressing the Senate of Congress on climate change, by a 50-49 vote (60 votes needed).

Federal Lands: The Senate rejected an amendment offered by Senator Barbara Boxer (D-CA) (SA 113), on federal lands (side-by-side alternative to the Fischer amendment (SA 18)), by a 55-44 vote (60 votes needed).

Federal Lands: The Senate rejected an amendment offered by Senator Deb Fischer (R-NE), to limit federal land designations, by a 54-45 vote (60 votes needed).

Climate Change: The Senate tabled an amendment offered by Senator Joe Manchin (D-WV) (SA 99) on climate change by a 53-46 vote (60 votes needed).

Climate Change: The Senate tabled an amendment offered by Senator Bernard Sanders (I-VT) (SA 24) on climate change by a 56-42 vote (60 votes needed).

Oil and Gas Permits: The Senate rejected an amendment offered by Senator Mike Lee (R-UT) (SA 71) on oil and gas drilling permit process reform by a 51-47 vote (60 votes needed).

Crude Oil Excise Taxes: The Senate adopted an amendment offered by Senator Lisa Murkowski (R-AK) (SA 123), (alternative to the Wyden

amendment on crude oil classification for excise tax purposes), by a 75-23 vote.

Crude Oil Excise Taxes: The Senate rejected an amendment offered by Senator Ron Wyden (D-OR) (SA 27), on crude oil classification for excise tax purposes, by a 50-47 vote.

Greenhouse Gas Agreements: The Senate rejected an amendment offered by Senator Roy Blunt (R-MO) (SA 78), expressing the sense of the Senate on international greenhouse gas agreements, by a 51-46 vote.

Eminent Domain for Keystone XL: The Senate adopted an amendment offered by Senator John Cornyn (R-TX) (SA 126), which requires that “[l]and or an interest in land for the [Keystone XL] pipeline and cross-border facilities…only be acquired consistently with the Constitution, by a 64-33 vote.

Eminent Domain for Keystone XL: The Senate rejected an amendment offered by Senator Robert Menendez (D-NJ) (SA 72), which would have prohibited the use of eminent domain for the Keystone XL Pipeline, by a 43-54 vote.

Excise Taxes: The Senate tabled an amendment offered by Senator Ed Markey (D-MA) (SA 25) on the application of excise taxes to tar sands crude oil by a 53-42 vote.

Excise Taxes: The Senate tabled an amendment offered by Senator Tom Carper (D-DE) (SA-121), to impose an 8-cent per barrel fee on oil transported through pipeline, by a 57-38 vote.

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(SA 28) requiring campaign finance disclosures for “tar sands beneficiaries”, by a 52-43 vote.

Judicial Review: The Senate tabled an amendment offered by Senator Patrick Leahy (D-VT) (SA 30), to strike the provision of the bill regarding judicial review, by a 53-41 vote.

LIHEAP: The Senate tabled an amendment offered by Senator Jack Reed (D-RI) (SA 74), expressing the Senate of the Senate on funding for the Low Income Home Energy Assistance Program, by a 49-45 vote.

Late on January 22, Senate Majority Leader Mitch McConnell (R-KY) filed for cloture on the manager’s amendment and the underlying bill, which could lead to conclusion of Senate debate on the legislation next week. The House passed its version of the legislation (H.R. 3) on January 9. The Senate and House are expected to conference or otherwise reconcile their bills, sending a final version to President Barack Obama. However, the White House has warned that the bill faces a veto. In a Statement of Administration Policy (SAP) issued on January 7, the Office of Management and Budget asserted that the legislation “seeks to circumvent longstanding and proven processes for determining whether cross-border pipelines serve the national interest by authorizing the Keystone XL pipeline project prior to the completion of the Presidential Permitting process.” The SAP warns that “if presented to the President, his senior advisors would recommend that he veto this bill.”

Upcoming Hearings and Events January 29 LNG Exports: The Senate Energy and Natural Resources Committee will hold a

hearing on the “LNG Permitting Certainty and Transparency Act” (S. 33). February 3-6 Energy Conference: The National Association of State Energy Officials (NASEO) will hold its Energy Policy Outlook Conference. February 4 Regulation of Wetlands: The House Transportation and Infrastructure Committee and the Senate Environment and Public Works Committee will hold a joint hearing on the “Impacts of the Proposed Waters of the United States Rule on State and Local Governments”. For more information about energy and environment issues you may email or call Frank Vlossak at 202-659-8201. Updates on energy and environment issues are available during the week on twitter. DEFENSE Thornberry Outlines Committee Role in Speech Key Points:

The new HASC Chairman lays out a role for the Committee that will entail involvement in pentagon and Administration defense decisions

Thornberry renews his call for a sequestration fix, expressed a willingness to consider compensation reform, and argued that acquisitions reform must be pursued deliberately

On January 20, the House Armed Services Committee Chairman Mac Thornberry (R-TX) appeared at the American Enterprise Institute panel discussion titled “A Congressional Roadmap for Rebuilding Our Nation’s Military.” Thornberry articulated his vision for how the Committee will function under his





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leadership, Congress’ role on defense policy and funding, and some of his priorities for this Congress. Thornberry conceded that “[s]ometimes, the Pentagon is pennywise and pound foolish…[s]ometimes, the Pentagon can be parochial…” He asserted that “[s]ometimes, the White House tries to cut military spending to put money in other parts of the budget…[a]nd sometimes their priorities are just wrong.” Thornberry noted that “[i]t was Congress that forced the Pentagon to buy the Predator.” He stated that “[o]f course” Congress is also “sometimes parochial.” Thornberry stated that “[s]ome people expect the lawmakers to just cut the check and don’t ask too many questions.” He claimed that “Congress should not give any President a blank check, and Congress should not be a rubber stamp…[but rather] [i]t’s the branch of government most responsible for the character and contours of our military.” Thornberry stated that “as the complexity of our security challenges grows, so does the necessity of Congress fully living up to our responsibilities under the Constitution, and playing our part to defend the country.” He claimed that “Congress is the indispensable link to the American people, they wrote, the connective tissue between our national leaders and policies.” He contended that “to be that connective tissue we in Congress have to do our job, and a big part of that job is building the military capability we need to deal with the threats we can see, but also for the volatile, unpredictable world that we all live in.” Thornberry stated that “[t]hat requires the United States to have a military that is both strong and agile, and I think we’ve got a lot of work to do on both fronts.” He argued that “[o]f course, to be strong, we’ve got to stop the

slide in defense budgets that has reduced our base defense spending 21% since 2010.” Thornberry asserted that “the problem with sequestration is about a lot more than facts and statistics, it’s about whether we have the capability to do what the nation needs and that times demand.” He contended that “[i]t’s also very much about the increased danger that comes to our people from diminished training, aging equipment, and a temple of operation that stretches them and their families just too far…[and] [i]t has to be fixed.” Thornberry stated that “[e]ven without sequestration, we have to make good decisions on our investments in people and on technology…[and] [o]ur people, of course, are our most valuable asset.” He noted that “[w]e’ll soon get the report of the Military Compensation and Realignment Modernization Commission.” Thornberry said that “[w]e need a comprehensive look, I think, at the whole benefits structures rather than try and nickel and dime our service members to death, year after year, as the Administration has proposed.” Thornberry remarked that “I’m going to be looking not just at the financial impacts of that study, but especially about how it affects our ability to recruit and retain the best our country has to offer, because that’s the key to our future.” Thornberry stated that “[w]e have to improve our acquisitions system to get more value out of the money we spend on both goods and services.” He asserted that “[i]f Boeing can field a new commercial airliner in five years, if Ford can take a car from design to production in 24 months, then there’s absolutely no reason that the Pentagon should take two decades to put a new fighter into service.” Thornberry declared that “[t]hings have to change.” He argued that “[w]e have an unfortunate tendency to fix organizational problems with more






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organizations…[a]nd I’ve seen estimates that show nearly a third of the acquisition budget goes to overhead costs.” Thornberry stated that “[t]his system is so gummed up it’s a wonder, sometimes, that anything ever comes out the other end…[b]ut to have a military that is both strong and agile means that we can’t tolerate the delays and cost overruns that have plagued our procurement system.” He contended that “[a] lack of agility means that vital technology doesn’t get to the troops in a timely way, which has the potential to jeopardize their mission, but almost certainly increases the risk to their lives.” He said that “I’m pretty optimistic that working with Undersecretary [of Defense for Acquisition, Technology and Logistics Frank] Kendall we can find a way to thin out regulations, simplify procurement, while increasing accountability for program performance.” Thornberry stated that “[p]art of our job is to update our oversight to fit the kinds of threats we face, and the kinds of operations we need to protect the country today.” He asserted that “I think we’ve made a good start with new oversight of cyber operations and of sensitive military operations that go on around the world, but we have more work to do.” Thornberry said that “we have to ensure our oversight is not just focused on the capillaries, but is looking at the big trends that define our world and our security.” He added that “Congress contributes to this problem of too much effort for too little result…[s]o, we’re going to be looking at ourselves and the reports we require, too.” SASC Hearing on U.S. National Security Strategy Key Points

In the first hearing of the 114th Congress, the Senate Armed Services Committee examines broad gauge security strategy with Carter and the first Bush Administration national security advisors

On January 21, the Senate Armed Services Committee held its first hearing of the 114th Congress and the first with new Chairman John McCain (R-AZ) leading the Committee. In his words, the hearing “begins a series of hearings on global challenges to U.S. national security strategy,” with former National Security Advisors General Brett Scowcroft and Dr. Zbigniew Brzezinski appearing before the Committee. McCain claimed that “[f]or seven decades, Republican and Democratic leaders alike have committed America’s indispensable leadership and strength to defending liberal world order, one that cherishes the rule of law, maintains free markets and free trade, provides peaceful means for the settlement of disputes, and relegates wars of aggression to their rightful place in the bloody past.” He stated that “America has defended this order because it is as essential to our identity and purpose as it is to our safety and prosperity…[b]ut the liberal world order is imperiled like never before.” McCain asserted that in his State of the Union Address, “President [Barack] Obama told the nation last night that the shadow of crisis has passed.” He claimed that “[t]hat news came as quite a surprise to anyone who has been paying attention to what has been happening around the world.” McCain stated that “[i]t does not have to be this way…[and] [w]orking together, this Congress and the President can immediately begin to restore American credibility by strengthening our common defense.” He claimed that “American military power has


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always been vital to the sustainment of the liberal world order…[and] [i]t enhances our economic power, adds leverage to our diplomacy, reassures our allies, and deters our adversaries.” McCain asserted that “[y]et despite the growing array of complex threats to our security, we are on track to cut $1 trillion out of America’s defense budget by 2021…[and] [r]eadiness is cratering across the services…[and] top Pentagon officials and military commanders are warning that advances by China, Russia, Iran and other adversaries mean U.S. military technological superiority can no longer be taken for granted.” McCain declared that “[w]e must have a strategy driven budget and not a budget-driven strategy…[and] a strategy based on a clear-eyed assessment of the threats we face and a budget that provides the resources necessary to confront them.” Ranking Member Jack Reed (D-RI) stated that “[t]he number and breadth of these challenges seems unprecedented -- from Russia’s aggressive and destabilizing actions in Europe to the breakdown of nation states in the Middle East and the rise of non- state actors like Al Qaida and ISIL that threaten the integrity of states throughout the region, to Iran’s continued pursuit of a nuclear weapons program, the proliferation of risks associated with that to the growing assertiveness of China, both regionally and globally, and to cyber threats from North Korea and other maligned actors.” He said that the Committee would be interested in Scowcroft and Brzezinski’s “perspectives on each of these challenges and the principles that you believe should guide us in addressing them…[and] [w]ith regard to the Middle East first, how would you define a near and long-term United States interest in the region.” Reed asked “[s]econdly, what do you believe would be required to defeat the threats from violent extremist groups like ISIL, both in terms of the U.S. policy and international

collaboration…[a]nd third, what role, if any, do you believe nations outside of the Middle East should play in addressing centuries-old divisions in that region, including the Sunni-Shia divide, ethnic rivalry (ph) and political and ideological divisions.” He said that “[i]n regard to Europe, how should the United States and its allies contend with an aggressive revanchist Russia while reassuring our allies and respecting the aspirations of the people of Eastern Europe to draw near to our community of nations in Europe.” Reed asked “[w]ith regard to China, how should the U.S. keep the relationships from spiraling, if the conflict while demonstrating to its allies and partners in the region, that it will help to counterbalance China’s assertiveness.” He stated that “finally, regarding the cyber problem, our society appears to be very vulnerable to…attacks…[a]nd even small states like North Korea, who currently have no other means of threatening the homeland militarily.” Scowcroft said that “[t]he world we live in is full of problems…[a]nd some of them seem to result from new or novel forces and influences.” He asserted that “[t]he Westphalia system was created really in the 17th century after the Thirty Years’ War and the devastation it had caused…[and] [i]t made the nation state the element of political sovereignty in the world.” Scowcroft said that “now, we have something new to confuse the international system, and it’s called globalization…[a]nd two aspects of it are particularly difficult to manage in this Westphalian world…communications…[a]nd another, in a different way, climate change.” He claimed that “[c]ommunications is connecting the world and connecting people to the world like never before in history…[and] [t]his is a very, very different world, where the Westphalian system is blocked down…[that] used to keep out information it didn’t want its people to see.”






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Scowcroft asserted that climate change “demonstrates what we cannot do, the nation state alone…[because] [n]o nation state can deal with climate change.” Brzezinski stated that “bipartisanship is badly needed and I think we all know that, given the complexity and severity of the challenges that America faces in Europe, in the Middle East and potentially in the Far East…[t]ogether they pose an ominous threat to global security.” He said that “[i]n Europe Putin is playing with fire…[and] [f]inancing and arming a local rebellion, and occasionally even intervening directly by force in order to destabilize Ukraine economically and politically, and thereby destroy its European aspirations.” Brzezinski stated that “[g]iven that the current sanctions should certainly be maintained until Russia’s verbal commitments to respect Ukraine’s sovereignty are actually implemented…[and] [i]n the meantime, NATO and especially the U.S. should make some defensive weaponry available to Ukraine, something that I have been urging since the onset of the crisis.” He stated that “[t]urning to the Middle East, again very briefly, we should try to avoid universalizing the current conflict in Europe into a worldwide collision with Russia.” DOT&E FY2014 Annual Report Key Points:

In its annual report, the Pentagon’s top weapons tester finds problems with the operational testing of many major weapons procurements and articulates his concerns that many weapons system are vulnerable to cyber attacks

This week, the Department of Defense’s (DOD) Director of Operational Test and Evaluation (DOT&E) J. Michael Gilmore submitted his FY 2014 Annual Report to

Congress in which he reported his findings on the DOD’s operational testing of major weapons programs for the last fiscal year. Gilmore said that “[s]ince my first report to you in 2009, we have made progress increasing the scientific and statistical rigor of operational T&E; there is much work to be done, however, since the Department’s test design and analysis capabilities lag behind the state of the practice.” He stated that “[a]dditionally, we have focused attention on reliability design and growth testing, and in improving cybersecurity operational testing…[and] [o]perational testing continues to be essential to characterize system effectiveness in combat so well-informed acquisition and development decisions can be made, and men and women in combat understand what their equipment and weapons systems can and cannot do.” Gilmore said that “[u]nder current law, the Director of Operational Test and Evaluation (DOT&E) is required to present his opinion on whether the operational testing conducted prior to the Beyond Low-Rate Initial Production decision is adequate or not.” Gilmore stated that “DOT&E activity for FY14 involved oversight of 309 programs, including 26 Major Automated Information Systems…[and] [o]versight activity begins with the early acquisition milestones, continues through approval for full-rate production, and, in some instances, during full production until removed from the DOT&E oversight list.” Gilmore stated that “I surveyed 81 programs that either underwent OT in FY14 or will undergo operational testing (OT) within the next three years (some programs fall into both categories), and are reported on in this Annual Report.” Gilmore remarked that “[a]bout one-third of the programs (15 of 48) that underwent OT


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during FY14 did so successfully; that is, they did not uncover problems significant enough to negatively affect DOT&E’s assessment of operational effectiveness, suitability, and

cybersecurity.” He stated that “[a]bout two‑thirds of the programs (33 of 48) that underwent OT during FY14 encountered problems that negatively affected DOT&E’s assessment of their operational effectiveness, suitability, and/or cybersecurity.” Gilmore asserted that “[t]hese problems were either new problems discovered in the OT event, or were re-observations of known problems.” He claimed that “[o]f these 33 programs, 8 programs discovered only new problems, 15 only re-observed known problems, and 10 both discovered new problems and re-observed known problems.” Gilmore asserted that “[f]or programs with upcoming OT events in the next three years, I determined that slightly more than one-third (15 of 42) of the programs currently exhibit no effectiveness, suitability, or cybersecurity problems significant enough to jeopardize their successful performance in upcoming OT, which is to say that no problems have yet been found that, if not corrected, would negatively affect my assessment of operational effectiveness, suitability, or cybersecurity.” He claimed that “[o]f the remaining two-thirds of programs (27), I identified 23 that have effectiveness, suitability, and/or cybersecurity problems that, if not corrected, could negatively affect my operational assessments.” Gilmore said that “[t]he remaining four programs have items that potentially jeopardize successful performance in OT, but these relate more to schedule or process as opposed to effectiveness, suitability, or cybersecurity.” Gilmore stated that “[o]f the 81 total programs surveyed, 21 had reliability problems serious enough to either negatively affect the suitability

assessment in an FY14 OT report or jeopardize successful performance in OT….[and []p]rograms are taking corrective actions throughout the acquisition cycle to address reliability problems, but for some systems, reliability remains a concern even after IOT&E or FOT&E.” Gilmore stated that “[d]uring 2014, cybersecurity testing of more than 40 systems showed improvements must occur to assure secure and resilient cyber capabilities…[and] [o]ne important conclusion from my 2014 review of DOD programs was that operational testing still finds exploitable cyber vulnerabilities that earlier technical testing could have mitigated.” Gilmore explained that “[t]hese vulnerabilities commonly include unnecessary network services or system functions, as well as misconfigured, unpatched, or outdated software, and weak passwords.” Gilmore stated that “[m]y office continues to emphasize the need to assess the effects of a debilitating cyber-attack on the users of these systems so that we understand the impact to a unit’s mission success…[but] [a] demonstration of these mission effects are often not practicable during operational testing due to operational safety or security reasons.” He added that “I have therefore advocated that tests use simulations, closed environments, cyber ranges, or other validated and operationally representative tools to demonstrate the mission effects resulting from realistic cyber-attacks.” Gilmore stated that “[a]dequate funding of test resources remains a crucial aspect to fielding weapons that work…[and] [m]y office continues to monitor DOD and Service-level strategic plans, investment programs, and resource management decisions to ensure the Department maintains the capabilities necessary for adequate and realistic operational






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tests.” He asserted that “what constitutes adequate operational testing under realistic combat conditions is determined not by fiscal constraints, but by our war plans and the threats we face—the enemy (always) gets a vote…[and] [i]t would therefore, be a false economy and a disservice to the men and women we send into combat to make arbitrary budget-driven reductions to either developmental or operational testing.” CBO On Costs of Nuclear Weapons Key Points:

The CBO finds that the ten year estimate of costs for the U.S. nuclear weapons falls slightly from its 2013 estimates due in large part to changing budget plans in the DOD and DOE

On January 22, the Congressional Budget Office (CBO) released a statutorily required report titled “Projected Costs of U.S. Nuclear Forces, 2015 to 2024” “to estimate the 10-year costs of the Administration’s plans to operate, maintain, and modernize U.S. nuclear forces.” CBO used “the 2015 budgets for the Department of Defense (DOD) and the Department of Energy (DOE) and their associated justification documents” in determining that over the next ten fiscal years, the total costs associated with the nation’s nuclear forces would be $348 billion, some $7 billion less than the CBO’s 2013 estimate. CBO noted that “[t]he current strategic nuclear forces—consisting of submarines that launch ballistic missiles (SSBNs), land-based intercontinental ballistic missiles (ICBMs), long-range bombers, and the nuclear weapons they carry—are reaching the end of their service lifetimes.” CBO stated that “[o]ver the next two decades, the Congress will need to make decisions about the extent to which

essentially all of the U.S. nuclear delivery systems and weapons will be modernized or replaced with new systems.” CBO stated that it “estimates that over the 2015–2024 period, the Administration’s plans for nuclear forces would cost $348 billion, an average of about $35 billion a year, and an amount that is close to CBO’s December 2013 estimate of $355 billion for the 2014–2023 period.” CBO asserted that “[a]lthough the two estimates of total costs are similar, projected costs for nuclear programs of both the DOD and the DOE have changed.” CBO stated that “[o]ver the next 10 years, CBO estimates, DOD’s costs would total $227 billion, which is about $6 billion (or 3 percent) more than the 10-year estimate published in 2013, and DOE’s would total $121 billion, which is about $13 billion (or 9 percent) less than CBO’s 2013 estimate. Of the $348 billion, “CBO projects that $299 billion would be budgeted by DOD and DOE as follows:

$160 billion for strategic nuclear delivery systems and weapons;

$8 billion for tactical nuclear delivery systems and weapons;

$79 billion for nuclear weapons laboratories and their supporting activities; and

$52 billion for nuclear-related command, control, communications, and early-warning systems.

CBO stated that “[t]he remaining $49 billion represents CBO’s estimate of additional costs that would be incurred over the coming decade if the growth rates for the nuclear program’s costs are similar to the average growth rates for similar programs in the past.” CBO claimed that its estimates show that “the costs of nuclear forces represent roughly 5 percent to 6


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percent of the total costs of the Administration’s plans for national defense for the next 10 years.” Upcoming Hearings and Events January 27 National Security Strategy: The Senate Armed Services Committee will hold a hearing titled “Global Challenges and U.S. National Security Strategy” with testimony from General James N. Mattis, USMC (Ret.) Former Commander, United States Central Command, General John M. Keane, USA (Ret.), Former Vice Chief Of Staff Of The Army, Admiral William J. Fallon, USN (Ret.), Former Commander, United States Central Command. Iran Sanctions: The Senate Banking Committee will hold a hearing discuss the strategic necessity of sanctions on Iran. Benghazi: The Select Committee on Benghazi will hold a hearing to discuss the attacks on the U.S. consulate in Benghazi Nuclear Iran: The House Foreign Affairs Committee will hold a hearing to discuss nuclear negotiations with Iran. Terrorism & Social Media: The House Foreign Affairs Committee will hold a hearing to discuss the terrorist propaganda on social media. January 28 Budget Control Act of 2011 and Sequestration: The Senate Armed Services Committee will hold a hearing titled “Impact of the Budget Control Act of 2011 and Sequestration on National Security” with testimony from General Raymond T. Odierno, USA, Chief Of Staff of the Army, Admiral Jonathan W. Greenert, USN, Chief Of Naval

Operations, General Mark A. Welsh III, USAF, Chief Of Staff Of The Air Force, General Joseph F. Dunford, Jr., USMC, Commandant of the Marine Corps. U.S. Leadership & Global Security: The Senate Foreign Relations Committee will hold a hearing to discuss the case for American world leadership. DOD Technological Logistics: The House Armed Services Committee will hold a hearing to discuss the Department of Defense’s ability to respond to technological change. January 29 National Security Strategy: The Senate Armed Services Committee will hold a hearing titled “Global Challenges and U.S. National Security Strategy” with testimony from Dr. Henry A. Kissinger, Chairman Of Kissinger Associates And Former Secretary Of State, Dr. George P. Shultz, Thomas W. And Susan B. Ford Distinguished Fellow Hoover Institution Stanford University And Former Secretary Of State, Dr. Madeleine K. Albright, Chair, National Democratic Institute And Former Secretary Of State. Nuclear Iran: The Senate Banking Committee will hold a markup of the “Nuclear Weapon Free Iran Act of 2015.” For more information on defense issues you may email or call Michael Kans at 202-659-8201.


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HEALTH House Passes Legislation Restricting Federal Abortion Funds Key Points

House approves restrictions on federal funding of abortion; further Congressional action on abortion limitations possible

On Thursday, the U.S. House of Representatives approved the “No Taxpayer Funding for Abortion and Abortion Insurance Full Disclosure Act of 2015” (H.R. 7,) “to prohibit taxpayer funded abortions,” by a primarily party line vote of 242-179. The legislation was sponsored by Representative Chris Smith (R-NJ), and had 29 co-sponsors. In the 113th Congress, the House passed a similar measure, but the legislation was never taken up by the Senate. The legislation was considered after an alternative measure that would have banned abortions after 20 weeks of pregnancy was pulled from consideration by the full House. The first bill reportedly caused a divide between Republican Members, some of which expressed reservations about a requirement in the bill that would grant rape victims an exception to the ban only if the rape was reported to law enforcement. It is not clear if the House will take up the “Pain-Capable Unborn Child Protection Act” at a later time, and whether the bill will undergo modifications before it is considered. Senator Lindsey Graham (R-SC), the lead sponsor of previous Senate companion legislation, indicated that he would seek to modify the reporting requirement language. The Administration issued a veto threat on H.R. 7, asserting that the legislation would “intrude on women’s reproductive freedom

and access to health care…” It is not clear if the Senate will take up the legislation, but it is not viewed as likely that Republicans have enough votes to override the President’s veto of the bill. House Panel Convenes SGR Hearing Key Points

Health Subcommittee holds two-day hearing on SGR fix

Members cite commitment to finding permanent fix before March 31 deadline

The House Energy and Commerce Committee’s Health Subcommittee held a two day hearing to discuss the Medicare Sustainable Growth Rate (SGR), entitled: “A Permanent Solution to the SGR: The Time is Now.” The Committee heard testimony ranging from the healthcare provider perspective to experts that discussed potential revenue offsets to pay for the measure. Members on both sides of the aisle cited the importance of enacting a permanent fix that would provide certainty to seniors. Subcommittee Chairman Joe Pitts (R-PA) joined other bipartisan members in highlighting the opportunity that Congress has to enact a permanent SGR fix now, and urged the House and Senate to work together to find revenue offsets to pay for this legislation. Members present during the hearing generally avoided offering specific offsets but reiterated their commitment to finding pay-fors to attach to the legislation. However, several witnesses testifying before the Subcommittee did raise potential offsets, including but not limited to: Medicare means-testing; raising the eligibility age for Medicare; combining Medicare Parts A and B deductibles; Medigap coverage reforms; drug rebates; and rewarding the use of generic drugs.


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While some Members expressed optimism that Congress was close to finalizing a permanent SGR fix, others argued it would be challenging to agree on a package before the current patch expires on March 31. In 2014, the Committee joined the House Ways and Means Committee and Senate Finance Committee in negotiating legislation to permanently replace the SGR, but bipartisan offsets were never attached to the package. A permanent fix would likely cost around $140 billion, which remains the largest impediment to enacting a deal by the end of March. The House Ways and Means Committee and Senate Finance Committee are expected to convene similar hearings in the coming weeks. Upcoming Hearings and Events January 27 Public Health Legislation: The Health Subcommittee of House Energy and Commerce Committee will hold a hearing on public health legislation. Accountable Care Organizations and Health Policy: The District of Columbia Bar is hosting a discussion titled "The Changing Health Policy Landscape: Accountable Care Organizations (ACOs), Health Reform and Increased Consumerism." January 29 Employer Wellness Programs: The Senate Health, Education, Labor and Pensions Committee hearing titled "Employer Wellness Programs: Better Health Outcomes and Lower Costs." February 3 Influenza: The Oversight and Investigations Subcommittee of House Energy and Commerce Committee will hold a hearing on public health response efforts to influenza and

the effectiveness of vaccines and anti-viral drugs. For more information about healthcare issues you may email or call Matthew Hoekstra or George Olsen at 202-659-8201. TRANSPORTATION AND INFRASTRUCTURE FAA Certification Hearing Key Points:

Members expressed concern that the FAA’s lengthy certification process is disadvantaging U.S. aviation forms while making the certification regimes of other nations more attractive

Members and witnesses focused on FAA’s Organization Designation Authority (ODA)

On January 21, the House Transportation and Infrastructure held a hearing to discuss reforming and streamlining the Federal Aviation Administration’s (FAA) regulatory certification process. Chairman Bill Shuster (R-PA) noted that the House Transportation and Infrastructure Committee had not yet held its organizational meeting, but that the hearing would proceed under a unanimous consent request. He said the current FAA authorization expires in September 2015, making passage of an FAA reauthorization bill a top priority for the Committee. He expressed interest in learning about the reforms the FAA has made to its certification process and what additional reforms are needed. Shuster said the FAA certification process plays a key role in ensuring that aircraft are safe and that those who operate and maintain those aircraft are well trained. He suggested that “too often, we are seeing unnecessary regulatory burdens that do not







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serve to improve actual aircraft safety.” He raised concerns that the certification process in the U.S. is much slower than the processes in other nations. He stressed the need to have a proper certification process in order to ensure that the U.S. aviation market is both safe and competitive. He urged the witnesses to provide recommendations as to how the FAA certification process can be streamlined and improved in the next FAA reauthorization. Ranking Member Peter DeFazio (D-OR) noted the FAA was previously responsible for both promoting and regulating the U.S. aviation industry. He stated that following the crash of ValuJet Flight 592 in 1996 the FAA was stripped of its promotional role. He stressed the need to ensure the U.S. remains the “gold standard” in aviation safety. He suggested that the FAA has problems with staffing. DeFazio said the FAA should focus on new technologies and take a risk-based approach. He stated that the EU and other jurisdictions are using their regulations to disadvantage U.S. firms. He raised concerns that China’s aviation authority is requiring U.S. firms to turn over all of their designs. He urged the FAA to push back against the Chinese aviation authority. FAA Aircraft Certification Service Director Dorenda Baker stated that FAA is actively working to improve the certification process so that it does not negatively impact the global competitiveness of U.S. aviation companies. She asserted that the FAA relies on delegation to leverage their workforce and limited resources, using a risk-based approach. She noted that the FAA has delegated 90 percent of the certification process. She contended that not all of the industry concerns with the certification process can be addressed at the federal level. She explained that the FAA is emphasizing concepts from its Certification Process Improvement Guide on the local level,

allowing the FAA to work with companies to fully utilize the ODA. She said that the FAA has created an ODA scorecard to collect data related to safety, FAA involvement and ODA holder compliance, which will allow the FAA to evaluate the efficiency of ODAs from a national perspective. She emphasized that the FAA is working with its global partners to leverage bilateral agreements to facilitate the needs of U.S. companies. She said the FAA is working to develop a single source of regulation guidance that can be accessed through a centralized database. Government Accountability Office Civil Aviation Issues Director Dr. Gerald Dillingham stated that despite the FAA’s efforts to improve the certification process domestically and internationally for U.S. aviation products, many key challenges remain. He said the FAA has completed 10 GAO recommended initiatives to improve regulation clarity around the certification process. He warned that several initiatives will fail to meet their milestone deadlines, increasing the risk of delays and potential danger. He asserted that the FAA has drafted a plan to address regulatory inconsistencies based on six recommendations targeted to provide clarity to FAA staff and the industry. He noted that though the plan will be released this month, it is over a year behind its expected completion date. He said that more countries are conducting their own approval process for U.S. aviation products to operate in their airspace, resulting in companies experiencing uncertainty and delays in their products. He stated that the FAA is engaging in “several initiatives” to address challenges for foreign approval, and that GAO will continue to monitor the agency in anticipation of FAA reauthorization legislation.






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Drone R&D Hearing Key Points:

Witnesses discuss cooperation by federal agencies on fostering and furthering research and development of unmanned aircraft systems (UAS)

Members discussed the need for the FAA to promulgate a rule that would allow commercial UAS to fly in the NAS, which some project would boost the U.S. economy

On January 21, the House Science, Space and Technology Committee held a hearing titled “Unmanned Aircraft Systems (UAS) Research and Development.” Chairman Lamar Smith (R-TX) stated that “[t]he Teal Group, an aerospace and defense industry market intelligence firm, predicts America will spend over $11 billion on UAS research, development, testing, evaluation and procurement over the next decade…[and] [t]otal worldwide spending for the same period is projected to be $91 billion.” He stated that “[t]he report also notes that continued delays in integrating drones in the National Airspace System (NAS) could cost the U.S. more than $10 billion per year or $27 million per day, in potential earnings from investment in drones research and development.” Smith remarked that “[i]n June 2014, the Department of Transportation Office of Inspector General released an audit report that criticized the Federal Aviation Administration (FAA) for being slow to integrate drones into the National Airspace System…[and] concluded it’s unlikely that integration would be completed by the September 2015 deadline.” Smith stated that “[t]he FAA and the National Aeronautics and Space Administration (NASA) are working together to ensure safe and successful integration of drones in the

NAS…[and] [s]ome of the research being done seeks to ensure that drones have the technologies necessary to avoid midair collisions and the ability to be controlled from a central location.” He asserted that “[m]any other countries have developed a regulatory framework supportive of drone use for such activities. Consequently, some U.S.-based companies have moved research, development, testing and high paying jobs offshore.” Smith stated that “[o]ur goal today is to better understand the research underway to overcome these barriers.” Representative Suzanne Bonamici (D-OR) stated that “[t]he potential benefits of UAS technology to agriculture, environmental research, natural resource management and I want to add that the Chairman acknowledged some of those emergency disaster relief efforts is really multiplied by expanding the workforce focused on the development of new products, which is creating, of course, new job opportunities throughout, not only Oregon, but in other test areas as well.” NASA Aeronautics Research Mission Directorate Integrated Systems Research Program Director Dr. Ed Waggoner stated that “NASA’s aeronautics strategic thrust and assured autonomy defines our vision and approach for supporting the near-term integration of UAS into the NAS.” He stated that “there are significant barriers in research challenges associated with the introduction of autonomous systems into our aviation system…[which] requires these complex systems to be comprehensively evaluated, to verify and validate that they’re operating its design, thus allowing the FAA to establish operations and equipment standards.” Waggoner asserted that “[t]he majority of NASA’s near-term research work towards safe UAS integration is focused in three


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areas…[and] [i]n our sense and avoid research, we’re helping to determine performance requirements for certifiable, sense and avoid system to ensure safe separation of the UAS with all vehicles operating in the NAS.” FAA Aviation Safety Organization UAS Integration Office Manager James Williams stated that “[t]ogether with the Radio Technical Commission for Aeronautics (RTCA), a federal advisory committee, the FAA is developing standards for command and control radios to detect and avoid systems.” He stated that “[t]he FAA, Department of Defense (DOD) and NASA are working closely together to develop a technical standard for UAS detect and avoid systems that will allow UAS to remain well clear of other aircraft.” Williams stated that “[t]he research, engineering and development contributions of the DOD and NASA had been essential to developing that standard…[and] [t]ogether with NASA and our industry partners, the FAA’s developing standards for command and control radios, these radios provide the link between the pilot and the aircraft and it is essential that they be secure and reliable.” Upcoming Hearings and Events January 27 Organizational Meeting: The House Transportation & Infrastructure Committee will hold an organizational meeting for the 114th Congress. Disaster Recovery Issues: The House Transportation & Infrastructure Committee will hold a hearing to discuss rebuilding efforts following natural disasters. February 4 Proposed Waters Rule: The House Transportation & Infrastructure Committee

will hold a hearing to discuss the EPA’s proposed waters rule. For more information on transportation issues you may email or call Michael Kans at 202-659-8201. Alex Barcham and Greg Frink contributed to this section. TECHNOLOGY Net Neutrality Hearings Key Points

The House and Senate Committees of jurisdiction held hearings to tout their bicameral discussion draft that would reinstitute some components of the FCC’s 2010 net neutrality rules without utilizing Title II authority to reclassify ISPs

Democrats generally opposed the bill unveiled last week by Upton, Walden, and Thune while witnesses split on its merits

On January 21, the House Energy and Commerce Committee’s Communications and Technology Subcommittee held a hearing entitled “Protecting the Internet and Consumers Through Congressional Action.” Chairman Greg Walden (R-OR) explained the Subcommittee has put together draft legislation and have invited the witnesses provide feedback on it. He said the draft legislation is intended to provide consumers the protections they deserve without choking off investment and innovation. He pointed to the Federal Communications Commission’s (FCC) previous efforts to defend net neutrality, noting the courts have twice rejected those efforts. He noted the FCC’s current rules were drafted for 19th century railroads and subsequently adapted for the telephone. He said the discussion draft is largely based on the 2010 Open Internet Order and draws from Former Energy and Commerce Chairman Waxman’s


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legislative proposal. He expressed concern that the courts recently interpreted §706 to permit the FCC to take nearly any action to promote broadband, so long as it is not inconsistent with the rest of the Telecommunications Act. He called for a new communications policy, stressing his commitment to bring Internet connectivity to areas currently lacking it. He expressed support for ending the net neutrality debate before it goes to court again. Ranking Member Anna Eshoo (D-CA) pointed to the problems of problems of online blocking, throttling and paid prioritization, saying bright-line rules should apply to both fixed and mobile broadband services. She contended the proposed legislation limits the power of the FCC by prohibiting it from reclassifying broadband under Title II. She expressed concern that the legislation would create a loophole in that it prohibits so-called “fast lanes,” but broadband providers could give themselves prioritized service as a “specialized service” and the FCC would have no power to define the term. She asserted the proposed legislation contains a bias against enforcement and harms efforts to bring broadband to rural areas. She stressed the importance of an open Internet to the American economy and promoting democracy. Full Committee Chairman Fred Upton (R-MI) asserted the draft legislation would codify FCC authority to enforce the “bright-line rules of the Internet road,” and protect consumers and innovators. He explained the draft legislation prohibits Internet service providers (ISPs) from blocking content, selectively changing the quality of traffic, prioritizing certain traffic based on payment; and requires providers to be open and transparent with consumers. He said this legislation includes safeguards to prevent mischief and empower consumers. He asserted

this legislation would “put to bed” a contentious issue for the sake of the public. Full Committee Ranking Member Frank Pallone Jr (D-NJ) observed that Internet access has become a critical part of modern life. He noted 4 million people have reached out to the FCC demanding net neutrality provisions. He expressed support for developing “truly bipartisan” legislation. He called for the FCC to remain vigilant to protect consumer privacy, encourage accessibility, and to promote broadband deployment to rural areas. He noted these are complex issues with complex answers, asserting “Congress cannot be expected to work it all out in 13 days.” He observed it has been more than a year since a court struck down the 2010 net neutrality rules and called for action. National Cable & Telecommunications Association President and CEO Michael Powell pointed to the fact that the FCC has been trying to adopt neutral Internet regulation for ten years, calling for Congressional action. He said Congress has the power and the responsibility to “end this rollercoaster,” but cautioned that Congress has not thought through the Title II approach and its implications for the FCC’s authority. He noted Title II was developed for the telephone area, which did not have “giant Internet companies.” He questioned whether this “dated analog framework” should be used in telecommunications going forward, asserting this could have unintended future consequences. He observed using Title II in the Internet arena would implement sweeping policy changes and create a bevy of legal and technical problems. He pointed to the fact that under the proposed legislation, one agency’s actions would narrow the jurisdiction of another. He emphasized the strong desire to bring broadband Internet to all. He asserted


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Congress has the power to eliminate legal uncertainty and expressed support for finding a bipartisan solution. Amazon.com Vice President of Global Public Policy Paul Misener explained consumers want to keep the fundamental openness to the Internet and will recognize if net neutrality is taken. He asserted the FCC has ample statutory authority to maintain net neutrality. He expressed support for the discussion draft’s ban on access fees and disclosure requirements. However, he noted, Subsection D of the draft exempts specialized services from those requirements, creating a large loophole. He expressed concern the draft’s Subsection F allows “reasonable network management,” which is open to interpretation. He observed a consumer will not care where interference with net neutrality occurs, simply whether it occurs. He called for modification to the draft legislation in order to provide Internet companies with certainty and allow consumers to make informed choices. He cautioned the draft could be interpreted to prohibit the FCC from engaging in notice and comment rulemaking, which Amazon opposes. On January 21, the Senate Commerce, Science, & Transportation Committee held a hearing entitled “Protecting the Internet and Consumers through Congressional Action.” The hearing focused on how best to ensure a free and open Internet. The majority touted the discussion draft as a means of providing the Internet with statutory and regulatory certainty, while the minority favored strong Federal Communications Commission (FCC) regulations to maintain net neutrality.

Chairman John Thune (R-SD) said the FCC wants to propose public utility regulations, calling for legislation to establish rules of the road and limits on FCC’s regulatory authority.

He urged the Committee to provide certainty to creators, service providers, the FCC and users. Thune said only Congress can provide the Internet with statutory certainty. He said he does not expect the discussion draft to be a final product, but rather a good faith proposal to find common ground between the parties. He stressed he would not endorse actions that would give the FCC undue authority. He expressed his hope that Congress can work together on the matter, noting that the executive branch seems determined to act alone. Thune challenged the Committee to find common ground and forge a permanent solution. Ranking Member Bill Nelson (D-FL) said there is broad agreement among industry, consumers and Congress that a free and open Internet must be protected. He commended his colleagues for becoming aware of this important issue. Nelson said the same of the American people, noting 4 million Americans have contacted the FCC to express a desire for strong net neutrality protections. He stressed that any action taken on net neutrality should be made in the interest of the consumer. He expressed concerns about any proposal that would take away the FCC’s regulatory tools, calling for a regulator that is “not frozen time.” Nelson argued that the FCC’s regime has made the American telecommunication industry the envy of the world. He contended the stakes are too high not to address the issue of an open Internet properly, rather than quickly. CTIA-The Wireless Association President & CEO Meredith Attwell Baker testified that America’s wireless industry supports an open Internet, explaining that consumers demand it. She added that the wireless industry has grown into a key driver of economic growth in the past 20 years. She credited Congress for crafting Section 332 of the Communications


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Act to allow the wireless industry to flourish. Baker called the draft bill a good start, noting that properly crafted legislation would benefit all. She said more than 8 out of 10 Americans can choose from four or more broadband providers, driving new services that benefit consumers. Baker added that features like 5G services and LTE broadcast have great potential, urging proper flexibility for mobile devices in any new rules. She cautioned that application of Title II to wireless broadband would harm the economy because it was designed for another technology in another time, where competition and innovation were less prevalent. She said if Title II is implemented, the wireless industry would be forced to take the matter to court, expressing her belief that the wording of Section 332 benefits the industry. Baker said it is not the time to harm the wireless industry. Public Knowledge President & CEO Gene Kimmelman Public Knowledge testified that he was pleased to see the FCC working on strong net neutrality rules. He urged Congress to not interfere with rules that the FCC can appropriately promulgate, or to legislate in a way that “could do more harm than good.” He explained that Congress excels at establishing principles, then delegating to an appropriate authority to handle the details, warning of the dangers of Congress working in areas better left to experts. Kimmelman said the FCC needs to be able to use all of its authorities, including Title II, which the draft does not address. He urged the Committee to monitor the FCC, and step in when necessary, and consider the future needs of the broadband industry. Upcoming Hearings and Events January 27

Organizational Meeting: The House Science, Space & Technology Committee will hold an organizational meeting for the 114th Congress. Data Breach Issues: The House Energy & Commerce Committee will hold a hearing to discuss data breach legislation. Cybersecurity: The House Science, Space & Technology Committee will hold a hearing to discuss the growing cyber threat. January 28 Cybersecurity: The Senate Homeland Security & Governmental Affairs Committee will hold a hearing to discuss the importance of information sharing in cybersecurity. U.S. Technology Leadership: The House Science, Space & Technology Committee will hold a hearing to discuss supercomputing American technology leadership. For more information on technology issues you may email or call Michael Kans at 202-659-8201. Hanna Laver and Marc Pitaressi contributed to this section. This Week in Congress was written by Laura Simmons.


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