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Appropriations

Two weeks ago, the first punch in the funding fight was landed by Senate Minority Leader Harry Reid and it set the stage for the next three months. Senate Democrats followed through on their promise to filibuster the Defense Appropriations bill, and every spending bill thereafter, until Republicans begin to renegotiate the spending limits agreed to under the Budget Control Act. Following the Senate vote blocking consideration of the defense bill, the Democratic leadership in the House sent a letter to Speaker John Boehner echoing the actions of the Senate Democrats demanding that budget negotiations start “immediately.” Calls for another Murray-Ryan compromise began after Republicans inserted an additional $38 billion for defense funding in the budget resolution, the defense authorization bill, and the defense appropriations bills, using the Overseas Contingency Operations account that is not counted in the budget caps. At this point, there does not appear to be an opening for negotiations.

The full Senate will likely be unable to consider a single appropriations bill this summer as long as Democrats continue to call for negotiations. The House is expected to complete at least two more bills in July: Interior and the Environment (which it began last week) and Financial Services. We do not expect any other appropriation bills to make it to the floor before the end of the fiscal year, making it increasingly likely that Congress will have to pass a Continuing Resolution in September to avoid a government shutdown.

Highway Authorization and EXIM

The Highway Trust Fund authorization expires July 31 and, while just about every Member agrees that a long-term solution is needed, it appears we are headed for another short-term extension through the end of the year. Both bodies of Congress held hearings in June on ways to pay for a long-term bill but as the hearings showed, consensus is a long way off. Even for a short-term bill lasting through December, Congress will need to find some $11 billion in additional funds.

Additionally, it is appearing more and more likely that legislation reauthorizing the now-expired Export-Import Bank will get attached to the short-term Highway bill. Majority Leader Mitch McConnell said that this bill is the “obvious” choice and that supporters of the bank in the Senate “have the votes (to reauthorize), and I’m going to give them the opportunity” to vote on it. Speaker Boehner has promised votes on the Bank should the Senate send something to the House. As to the form of the reauthorization, we will provide details once they are available.

The process should look something like this: (1) The House sends a clean Highway bill to the Senate late in the week of July 20th; (2) the Senate attaches EXIM to the bill and sends it back to the House the week of July 27th; and (3) as July 31st approaches, the House is forced to swallow the Senate-passed combination bill and send it to the President.

Tax Update

As you know, the Senate Finance Committee working groups failed to submit their recommendations to Chairman Hatch and Ranking Member Wyden at the end of last week and a new deadline was set for July 7th. Both Finance Chairman Hatch and Ways and Means Chairman Ryan believe there is no chance of comprehensive reform until there is a new president in 2017.

Republicans on both sides of the Capitol examined the use of repatriation to pay for the Highway bill but as of now nothing has come of it. On another tax issue, the House passed the medical device tax repeal bill with a wide bipartisan majority and the Senate may be inclined to consider it this month, but there is no expectation that it will be signed into law.

Reconciliation

Leading up to the decision in King v. Burwell, Congressional Republicans had been preparing to use reconciliation to respond to the loss of health insurance subsidies had the court ruled in favor of King. However, the court sided with the government and upheld the legality of the subsidies. Now that this option is off the table, it appears less likely that reconciliation will be used this year. While Republicans are still discussing using reconciliation to repeal and replace Obamacare, budget rules prevent reconciliation from being used to repeal all parts of the current law, and the latest Congressional Budget Office estimate pegs the cost of repeal at $353 billion. There’s also the fact that the President would veto such a bill.

Cybersecurity

After the failed attempt by Majority Leader McConnell to attach cybersecurity legislation to the defense authorization bill, the Senate looks ready to consider the Cybersecurity Information Sharing Act (S. 754). Providing liability protection to companies that share data in real time with the federal government and other industry groups regarding cyberattacks will strengthen the nation against these attacks, say supporters. Opponents argue that civil liberties and privacy are undermined by the bill. If the Senate is able to pass the cybersecurity bill, Congress will need to reconcile differences between the Senate measure and the two bills passed by the House earlier this year.

Patents

House Judiciary Chairman Bob Goodlatte ushered his bipartisan Innovation Act (H.R. 9) through committee in June. In doing so, he has set the stage for the full House to vote on curtailing abusive patent litigation and providing protection for intellectual property rights. There are still a number of issues to work out between industry stakeholders across the board, which we will follow, but momentum is heading toward House passage. Meanwhile, on the Senate side, the Judiciary Committee is also moving legislation, approving its version on June 4.

21st Century Cures

After pulling back from considering the bill in June, the House appears ready to move the Cures bill (H.R. 6) the first week back. Prior to the break, Energy and Commerce Chairman Fred Upton was tasked with replacing an offset objected to by the insurance industry and others. Another obstacle to overcome may be conservative Members of the Republican Party: they now are voicing concern that the bill in the second five-year budget window calls for mandatory spending, unlike the first five years of discretionary spending (the bill sunsets after ten years).

Abundance of Energy

In addition to the Cures bill, the second piece of Chairman Fred Upton’s “legacy” is energy legislation. He and subcommittee Chair Ed Whitfield have previously released drafts focused on four main pillars: modernizing energy infrastructure, improving the energy workforce, strengthening the nation’s energy security, and increasing energy efficiency. Other issues likely to be addressed include the Strategic Petroleum Reserve, the FERC regulatory process, and hydropower. We don’t expect the final legislation to depart too much from the previously released discussion drafts. This package should be considered in the latter half of the month.

On the Senate side, Energy Committee Chair Lisa Murkowski continues to sift through a variety of proposals from committee members on both sides of the aisle in preparation for a possible July markup of comprehensive energy legislation.

National Defense Authorization Act

Pre-conference negotiations at the staff level are moving quickly and it is likely that the conference report could be finalized within the next week or so. Should this be the case, staff indicate they expect both chambers to approve the final report toward the latter part of July.

Other Items to Watch

FAA Reauthorization: Transportation Chairman Bill Shuster looks to introduce his bill that would, among other things, privatize the nation’s air traffic control system, but floor time looks dim for the bill in July. The timing of when the bill is introduced will foretell the likelihood that it can move in July.

Education: Both chambers will address legislation rolling back provisions of the No Child Left Behind law in July. The House failed to move its bill (H.R. 5) to the floor earlier this year after a revolt from conservatives, and the Senate will turn to a different version (S. 1177) that also rolls back the federal oversight of education.

Puerto Rico: Governor Alejandro Garcia Padilla has said that Puerto Rico cannot pay its debt of nearly $72 billion. He has lobbied Congress to allow the island’s public corporations and the central government to declare bankruptcy. How Congress responds, or doesn’t respond, to this news will have a lasting influence on the municipal bond market. So far, Judiciary Chairman Bob Goodlatte has held a hearing on the issue but has not endorsed a formal proposal.

Iran: Negotiations with Iran over curbing its nuclear program were extended to July 7th after intense negotiations failed to result in an agreement. The new deadline gives the administration little time to transmit the deal to Congress. Pursuant to law signed by President Obama, if the deal is presented to Congress by July 9th, then Congress has 30 days to review; however, if the deal reaches Congress after the 9th, then Congress has 60 days to review the terms. At the end of the review period, the House and Senate must either pass a resolution of approval or disapproval and during this time the administration cannot waive any sanctions against Iran.


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