In the first week of December, the House passed legislation reforming the bankruptcy code for financial institutions, authorizing defense programs for fiscal year 2015, and extending over 50 tax provisions for this year. The Senate approved a number of nominations to federal office.
Next week, both chambers will prioritize the final passage of a government spending bill through the rest of the fiscal year (Sept. 30) to avert a government shutdown (see below) and a reauthorization of the terrorism risk insurance program. The House will also address legislation to give the Federal Reserve authority to tailor capital standards for insurance companies. The Senate will address tax extenders and will also pass the House-passed defense authorization bill.
It is the ultimate goal of both chambers to conclude legislative activity next week and conclude this Congress until next year. However, leaders from both chambers indicated, if they cannot work through key pieces of legislation, votes into the weekend are possible.
Resolution to Tax Extenders Coming
The debate around dozens of expired tax provisions is coming to a conclusion. This week, the House passed a one year retroactive extension of almost all of the expired provisions for 2014.
As we have previously discussed, this package includes provisions important to businesses and individuals, including the R&D tax credit, bonus depreciation, section 179 business expensing and the IRA Charitable RMD. Many Senators have expressed dissatisfaction with the House bill and prefer a two-year extension of these policies. However, their options are limited as time is running out.
The Senate may alter the bill, but the more likely scenario is that Senators “hold their noses” and vote for the House bill next week. President Obama is expected to sign the tax extender package into law and if the Senate does not fight for a two-year bill, Congress will be back at the drawing board to address these extenders again next year.
Corporate Tax Reform Prospects
One obstacle in the bipartisan drive for tax reform is that President Obama has advocated for corporate tax reform while Republicans have called for comprehensive tax reform that includes reforms for small businesses and individuals as well as corporations. In an acknowledgment that this divide would be too hard to bridge, incoming House Ways and Means Committee Chairman Paul Ryan (R-WI) said this week that he will pursue a tax overhaul in 2015 focused on corporate tax rates and related reforms (including the tightening and possible elimination of some corporate deductions).
Although Chairman Ryan’s statement led to speculation that corporate tax reform was more of a possibility than previously thought for 2015, we are still more pessimistic than optimistic about those prospects.
Conversations with a wide range of lawmakers this week still lead us to view certain obstacles as too difficult to overcome in the short term and that chances for any meaningful tax reform are more likely after the 2016 presidential elections. Nonetheless, it will still be critically important for any stakeholders to be active and engaged in 2015 as a foundation for possible movement in 2017.
Water/Energy Nexus Related Bill Cleared for President’s Signature
This week the House passed a measure related to Israel that featured water prominently. The bill entitled the “United States-Israel Strategic Partnership Act of 2014” (S. 2673) was originally introduced by Senator Barbra Boxer back in July. It passed the Senate in September where it garnered 80 cosponsors.
Included in the bill were provisions that called for “more robust academic cooperation” in areas that include water science. It also called for open dialogue, regular engagement and further cooperation between both nations’ government agencies and private sector organizations in “issues relating to the energy-water nexus, including improving energy efficiency and the overall performance of water technologies through research and development.”
This bill which largely focuses on boosting cooperation between Israel and the US is another example of the bipartisan appeal and appetite for energy legislation. With a new Congress and all that it brings, policymakers are holding out hope for the passage of broader energy legislation next year.
Water and Sanitation Clears Senate Committee...Barely
The Senate Foreign Relations Committee gave the green light on Thursday to legislation that would strengthen U.S. programs designed to improve access to clean water in high-priority developing nations. The water bill, named after the late Sen. Paul Simon of Illinois, would amend the Foreign Assistance Act of 196 to steer clean water assistance to countries where large percentages of the population depend on unimproved drinking water sources, have no access to piped delivery systems or practice open defecation.
“Inadequate access to safe water and sanitation services sickens and kills thousands of children every day, and leads to poverty across the globe,” the bill's sponsor Senator Durbin said in a statement. “The Foreign Relations Committee agreed unanimously today, and I hope the full Senate will quickly pass this legislation before the crisis reaches a devastating tipping point.”
Yesterday's committee meeting was far from being free from drama. As the bill appeared poised to move, several Senators offered amendments on unrelated war powers which almost derailed the process. But in a compromise engineered at the last minute, the Committee approved the bill by voice vote and agreed to take up war powers separately next week. This bill and its House counterpart enjoy broad bipartisan support. We anticipate that this bill should be brought to the floor in the House and Senate next week.
Wood Burning Heaters Increasingly Coming Under Scrutiny by Regulators
Officials in several states are targeting wood-burning stoves as a means to improving local air quality. In Alaska this week, the Department of Environmental Conservation held a hearing on proposed state regulations to deal with air quality, primarily from wood burning sources.
Of the comments received at the hearing, several speakers felt that the regulations did not go far enough, especially in addressing outdoor hydronic heaters also known as outdoor boilers or furnaces. Some were upset that the state’s proposed plan for addressing the issue dismisses as technologically unfeasible measures such as: requiring existing wood-burning hydronic heaters be certified or removed, requiring old or inefficient wood-burning hydronic heaters be removed at the time of home sale and banning the use of wood-burning hydronic heaters on days when air quality is poor. Written comments on Alaska’s regulations are due by December 19th.
This is an area that the industry is keeping an eye on as regulators from the US Department of Energy to states like Alaska and Michigan have ongoing rulemakings on this issue.
Natural Gas Industry Waits for New Regulation on Fracking
With the final days of the 113th Congress coming to an end, many in DC are already turning their attention to January and energy policies such as the Keystone pipeline that the new Congress will likely take action on. However, one section of the energy industry is anxiously anticipating the release of an Interior Department rulemaking creating broad new regulations over hydraulic fracking on Federal and Indian lands.
As the Federal government controls approximately 650 million surface acres – approximately one-third of the nation’s surface area – and over 700 million acres of federal mineral estate, as well as more than 55 million acres of Indian mineral estate, these regulations will have sweeping consequences. Over the last decade, technical advancements in extracting oil and gas have allowed domestic producers to reach record production levels.
Virtually all the increase has come through hydraulic fracturing-- the procedure by which oil and gas producers inject water, sand, and certain chemicals into tight-rock formations to allow oil and gas to escape for collection in a well. After a three-year long process, many watchers suspect that the Bureau of Land Management will release its final rule after the Louisiana’s Senatorial run-off election on December 6th and before the new Congress is sworn in.
Bankruptcy Changes for Financial Institutions
The House passed a bill that would establish under Chapter 11 a new bankruptcy regime to facilitate the resolution of certain larger financial institutions. The bill would amend the bankruptcy code to allow for the continuation of a company’s operations through the quick transfer of assets to a bridge institution as well as a temporary 48-hour stay on early termination rights on certain financial contracts, including derivatives, which currently are exempted from such a stay under the bankruptcy code.
This resolution of a failing financial company under bankruptcy would provide an alternative to the resolution authority established under Title II of the Dodd-Frank Act. Unlike companion legislation introduced in the Senate, the House-passed bill does not include a repeal of Title II or limitations on borrowing from the Fed’s discount window. Since the bill will not be acted upon by the Senate this year, it will need to be re-introduced and re-considered again in the next Congress.
A push by Republicans to pair bankruptcy reforms with an outright repeal of Title II may stall the bankruptcy bill since such a measure is unlikely to receive the 60 votes necessary to pass legislation in the Senate and would be subject to a likely veto by President Obama.
$18 Trillion and Counting
The national debt quietly surpassed $18 trillion last week. Members of Congress and voters may be outraged by the high level of debt, but it was hardly a focal point this week in Washington as end-of-year business was prioritized instead.
The debt milestone is a reminder that Washington will again begin to fight over paying its bills once the debt ceiling limit suspension expires on March 15. In the recent past, the financial markets have suffered when Congress has drawn-out battles over the debt ceiling extensions, such as the 2011 debt battle. That high-drama debate saw the Dow fall nearly 2,000 points from the final days of July through the first days of August. The brinksmanship also prompted Standard and Poor’s to downgrade the U.S. credit rating.
Since 2011, the debt ceiling debates have not been as filled with drama, but this could very well change in the spring and summer of next year.
Symbolic Immigration Action
While we mention above that there is little congressional Republicans can do to stop the President’s executive order on immigration, House Republicans voted this week to state its belief that the President lacks the legal authority to implement the order.
The bill will be ignored in the Senate, which is still controlled by Democrats until January. The bill will generate some media coverage but will be symbolic only as it will have no effect over the implementation of the order.
No Government Shutdown
With an eye on a December 11 deadline when government funding will expire, House and Senate leaders from both parties are largely in agreement over the contours of a government spending bill that will last through the remainder of the fiscal year. We believe this bill will be passed by both the House and Senate next week and signed into law by the President.
The bill will fund all agencies of the government through the rest of the fiscal year except for the Department of Homeland Security (DHS). Funding for DHS will be more short-term—to last until early 2015—to give Republicans an opportunity to challenge President Obama’s recent executive order on immigration reforms early next year. Such a challenge may be more effective next year when Republicans have a majority in the Senate, but it is still likely to fail.
Despite their protests, there is little Senate Republicans will be able to do to stop the President’s executive order next year given what will be their too-small majority in that chamber. A “mini-government shutdown” threat of just the DHS could evolve as Congress deals with this bill and the immigration issue early next year.