This Week In Washington

More Info: Michael DiMaria | Partner and SW Regional Director | 602-717-3891 | [email protected]

Welcome back to Washington, and thanks for reading This Week in Washington.

We published our first edition of This Week on January 23, 2017. Our initial goal was to keep you both aware of and involved in legislative issues and regulatory matters that are important to Arizona with articles written by experienced experts who are involved in these issues every day. We wanted to introduce you to key Senators and Congressmen, and we also wanted to provide you with perspectives on the political process – because legislating and governing does not happen in a vacuum.

We have been humbled by the outstanding response to This Week. Several months ago, our great partners at the Arizona Chamber asked us to expand our reporting, and we have responded.

Our goals have not changed. But now This Week will have more. Much more.

John McKechnie will continue to report on banking and financial services, Ramona Lessen will continue to edit This Week and report on important committee hearings, Dana Marston will continue to edit and produce This Week, Al Jackson will continue to watch defense and defense appropriations issues, and former Congressman Erik Paulsen and I will continue to write on all things Washington in “Heard on the Hill.”

Patrick Robertson is new to the Total Spectrum family, but he is far from new to Washington. Patrick served former Senator Jay Rockefeller for nine years – the last five as his assistant chief of staff. He worked closely with the Senate Finance Committee on tax, trade, and trade adjustment issues, and he also worked closely with the Senate Commerce Committee. He now has spent over 10 years in the private sector and has wonderful relationships with Senate and House Democrats and their staff. Patrick is a graduate of American University’s Washington College of Law, and his in-laws live in Tucson.

Michael DiMaria is now a Partner and Southwestern Regional Director for Total Spectrum and serves on the Board of the Arizona Chamber of Commerce and Industry and InvisionAZ. Michael joined Total Spectrum after being the Arizona Director of Legislative and Regulatory Affairs for CenturyLink. He has a vast background and a world of experience in both tax and telecom policy, having worked for AT&T, Comcast, and Cox Communications.

Total Spectrum Spotlight will provide short but meaningful video interviews with both news makers and news shapers. We will work to ask the questions you would ask – and keep our interviews precise and focused.

The NEW This Week in Washington starts now.

We lead off with Patrick Robertson’s first “Washington Whispers” column. Erik Paulsen recently wrote an op/ed in Newsweek about the need for our trade agreements to prioritize American intellectual property, and we are reprinting it here. I write about what happened in August and some of the things to watch as we go forward toward the election in “Heard on the Hill”. Al Jackson provides an update on defense, and Ramona Lessen reports on a Senate Homeland Security hearing in August on the U.S. Postal Service.

And finally, I interview former Congressman Erik Paulsen in our inaugural episode of Total Spectrum Spotlight.

The NEW This Week could not have been possible without the constant support of Glenn Hamer, President of the Arizona Chamber of Commerce and Industry, and the outstanding assistance provided by Erica Wrublik of the Arizona Chamber staff.

Thanks for your interest in Washington. Thanks as always for reading – and now watching – the NEW This Week in Washington. We will be back in two weeks with another issue of This Week.

Stay well.

Steve Gordon, Managing Partner

Total Spectrum Spotlight: Congressman Erik Paulsen

Total Spectrum Spotlight will feature short but meaningful interviews with newsmakers and news shapers. In this inaugural edition, Steve Gordon and former Representative Erik Paulsen discuss Congress’s most pressing agenda items – additional economic stimulus related to COVID-19, funding the federal government, and other legislative action needed before the November election.

Heard on The Hill

By Steve Gordon, Total Spectrum Managing Partner

Congress was out of Washington in August, so this is our first report in quite a while. Let’s begin by reviewing August’s happenings and bring you up to date on news to the present.

This August in Washington – The normal on steroids in this very abnormal year.

A typical August in Washington for staff, associations, campaign staff, consultants, and lobbyists is relaxed and low key. It is a great time to catch up on reports and strategic thinking, catch up with friends, have a leisurely lunch with business colleagues, and squeeze in a short vacation.

This August was anything but typical. We have – like most Americans – spent the last six months siloed. Zoom meetings have taken the place of most interaction. Some restaurants are closed, and some have opened for take-out and limited on-premise dining. A few restaurants opened for outside dining, which is probably healthier, but who wants to eat in 90-degree heat and 90 percent humidity.

I was struck by a Downtown DC Economic Update published by Washingtonian magazine. The results were dramatic and highlighted what we knew. Working from home is the new normal, and there’s very little business or tourist travel coming to Washington.

Only 5% of office workers in downtown Washington were in their workplaces at the end of July.
Economic activity in downtown Washington was only 12% of what it was the previous year.
Restaurant sales were 20 to 40% of what they were a year ago.
Sales at destination stores were 30 to 50% of what they were a year ago.
Hotel occupancy was 8% in June.
The Walter Washington Convention Center is closed and will remain closed through the end of the year.
The sole bright spot was downtown housing, where condo prices rose from $617 per square foot in 2019 to $663 per square foot in the first half of 2020.

The Conventions

I love conventions. I have been to every Republican national convention since 1984, and I have watched most of the Democratic national conventions. Political conventions used to be designed to turn on the faithful who either worked for, volunteered with, or contributed to the two political parties. But conventions have changed because parties and the political process have changed. Conventions are now made-for-tv-productions primarily focused to sway independents. But they are still instructive – by listening to the messages and watching the messengers.

The Democratic Convention –Week of August 17

Speakers included Progressives (Senator Bernie Sanders, Congresswoman Alexandria Ocasio-Cortez), Party Leaders (former President Barack Obama, Former First Lady Michelle Obama, President Bill Clinton, Senate Minority Leader Chuck Schumer and others), Republicans (Former Ohio Governor John Kasich, Former Secretary of State Colin Powell) and the Standard Bearers (former Vice President Joe Biden and Senator Kamala Harris and their families).

The goal was to create a perception of a united front of Democrats, Progressives, and moderate Republicans whose focus is a white-hot determination to defeat Donald Trump. They showed a diverse but united party and downplayed details of their agenda.

The Republican Convention – Week of August 24

Speakers included Conservatives (Congressman Jim Jordan, Senator Tom Cotton), black and female Leaders (Senator Tim Scott, Kentucky Attorney General Daniel Carmeron, Secretary of Housing and Urban Development Ben Carson, Former UN Ambassador Nikki Haley, Iowa Governor Kim Reynolds, Senator Marsha Blackburn, Senator Joni Ernst, and others), Party Leaders (Leader Mitch McConnell, US House Minority Leader Kevin McCarthy) , and the Standard Bearers (Vice President Mike Pence, President Donald Trump and their families).

The goal was to show the strength of support President Trump has with minorities and women, and the Administration’s accomplishments. They showed a diverse party and united party and downplayed details of their agenda.

August Unemployment Numbers

The U.S. unemployment rate in August fell for the fourth straight month to 8.4%. We are clearly on the right road back.

MONTH UNEMPOYMENT RATE

Jan 2020 3.6%

Feb 2020 3.5%

Mar 2020 4.4%

Apr 2020 14.7%

May 2020 13.3%

July 2020 10.2%

August 2020 8.4%

The number of unemployed people dropped in August by 2.8 million to 13.5 million as many employers continued to rehire employees following the COVID-19 lockdown.

September – Congress ties up loose ends

Additional Stimulus Legislation

I said in July that I could not imagine a situation where the Administration and the Speaker didn’t find a way to pass additional legislation. It is never over until it is over, but the odds are not good.

The first hurdle was that Majority Leader McConnell had to get his caucus to agree on a compromise bill. I am told that Senator McConnell had a daily call in late August with members of his caucus to hammer out the details for a ‘skinny bill’. Over in the House, I am told that about 100 Democrats want the Speaker to compromise and move closer to the Administration’s position on the terms for additional legislation.

Senate Democrats filibustered the Republican’s skinny bill when it was brought to the floor. Sixty votes were needed to break the filibuster and move the bill forward. Fifty-two of 53 Republicans voted for the skinny bill, but no Senate Democrats voted for it.

The Speaker said this week that the House would stay in session under an agreement was reached on a COVID-19 package. However, that does not mean that House members will stay in Washington, rather that the House will technically stay in session when Congress leaves Washington at the end of the month. Members of the House would be subject to a call to return to Washington to vote for a compromise package.

Republican leadership in the Senate and the White House are convinced that Democrats do not want to give President Trump anything that looks like a victory. I was told by a chief of staff for a Republican Senator that “Democrats have purposely avoided getting an agreement because they see it as politically beneficial to them.”

BREAKING. President Trump urged Republican Senators Wednesday morning to go big on new stimulus spending – much bigger than they have gone so far. President Trump also called Democrats heartless “for not wanting to give stimulus payments to people who desperately need the money – it wasn’t their fault that the plague came from China.”

It appears that the sweet spot where both the Administration and the Speaker could agree is $1.5 trillion. But the sweet spot for Senate Republicans is $1 trillion – about half the caucus would prefer to spend less than $1 trillion, while about half would prefer to spend more. Senate Democrats would have to carry the bill in the Senate,and I expect about half of the Republican Senators to vote for it.

Appropriations for the fiscal year that starts October 1

Both the Senate and the House are going to start working next week on a ‘clean’ continuing resolution that will retain this fiscal year’s levels of funding into the next fiscal year. The only question is how many months the continuing resolution will cover… and that will ultimately get worked out. A government shutdown has been ruled out by both the Administration and the Speaker of the House.

Transportation

The Senate and the House both passed surface transportation bills, but Senate Republicans thought the House bill was too green. I’ve been told to expect a one-year extension of the current law that expires on October 1^st.

Leave No Judge Behind

Senate Republicans are continuing their effort to confirm as many judges as possible before the end of September.

Update: COVID 19 Vaccine

The U.S. Department of Health and Human Services and the Department of Defense released on Wednesday the most detailed plan yet for distributing and administering millions of doses of a future coronavirus vaccine for free to Americans. The Centers for Disease Control and Prevention is requiring states and jurisdictions to submit plans on how they will administer and distribute the vaccine by October 16.

The hope is that limited doses will be available to specific groups of people – for example, first responders – as early as November. The supply is expected to dramatically increase in 2021.

Washington Whispers

By Patrick Robertson, Total Spectrum Strategic Consultant

With little more than a month to go before the 2020 election, one of the pressing questions in Washington is, “What would a Biden administration look like?” Currently, pundits are kicking around a variety of answers and President Trump has weighed in a number of times about what he thinks a Biden administration would look like.

Most of us know what to expect with a second Trump term. Taking COVID-19 out of the conversation, the President has promised to make the second term look a lot like the last four years, even promising new tax cuts and significantly further reducing the size of the government.

Before getting to the Biden campaign’s priorities, four things should be noted – first, little of anything can be done by either candidate until COVID-19 is controlled; second, while neither campaign is talking about it seriously, the national debt is going to be an issue in the next four years; third, a number of social issues like gun control will be at the forefront; and fourth, a Biden Administration will rejoin the World Health Organization (WHO) and alter the international relationships of the U.S., none of which are discussed below.

On the debt, the U.S. government currently owes more than $20 trillion to other countries and has about $5 trillion in liabilities for intergovernmental transfers. This year, the U.S. is projected to add $3.3 trillion to the debt, more than three times last year and the highest level as a percentage of the Gross Domestic Product (GDP) since 1945. It is rapidly approaching 100% of GDP. While current low interest rates will continue to keep debt service close to what it has been, this long-term issue will need to be reckoned with at some point, though not in the heat of this Presidential campaign.

With those gigantic caveats, former Vice President Biden has laid out an aggressive and sweeping agenda for his first 100 days. Some of his proposed actions are predictable, like repealing Trump-era environmental regulations and expanding worker protections. But the Biden agenda follows a tried-and-true Democratic playbook – expand government programs, raise taxes on corporations and the wealthy, and increase environmentally friendly policies.

Expansion of Government Programs

The Biden campaign has proposed a $1 trillion January 2021 stimulus plan plus a $3 trillion Build America Back Better proposal for later in the spring. The first stimulus would likely address COVID recovery and response, including more money for testing, state and local governments, potentially more direct payments to Americans, expanded unemployment benefits, and other stimulus payments.

The Build America Back better plan would fund American manufacturing, green energy technologies, and infrastructure. H.R. 2, The Moving Forward Act, passed earlier this summer by the House will serve as a model for this proposal. That bill included a lot of green energy provisions, infrastructure spending, expansion of community development tax credits, and other priorities of the House Democratic majority. You can find more information on the Moving Forward Act on the House Transportation and Infrastructure Committee’s website.

Advisors to the Biden campaign are pushing for bold stimulative action, and with interest rates so low, are comfortable with more debt to fund the spending. While this has often been the Democratic line, it is even better established in this campaign with the alternative being painted as a decade of economic woe without unprecedented spending.

Tax Proposals

In order to pay for some of the spending outlined above, which is necessary even if a Biden Administration is willing to increase the debt, the Biden campaign has proposed the following tax changes:

Repeal the Tax Cuts and Jobs Act (TCJA) tax cuts for those making more than $400,000 a year
Tax capital gains as ordinary income for those making more than $1 million
Raise the corporate rate from 21% to 28% (it was 35% before TCJA)
Double the Global Intangible Low Tax Income (GILTI) rate from 10.5% to 21%
Impose the 12.4% Social Security payroll tax on wage and self-employment income over $400,000
Enact a carbon capture and sequestration tax credit
Increase the child tax credit
Increase green tax provisions, like the electric vehicle credit and a credit for residential energy efficiency
Expand the Earned Income Tax Credit

You can read more about these proposals from the Biden campaign and the Tax Foundation.

Environmental Policy

On the campaign trail, former Vice President Biden has promised net-zero emissions economy wide by 2050. One way he plans to meet that goal is through $2 trillion in investments in the green economy. Certainly, some of those will be double counted from the infrastructure spending mentioned above. His campaign planks include zero-emission transit for any city with more than 100,000 people and carbon emission-free American power by 2035. You can read more about his environmental policy here.

Conclusion

There are two more key points for consideration. First, a Biden Administration, or a Trump Administration for that matter, cannot accomplish the vast majority of these goals without a majority in the House and a super-majority in the Senate. This raises the key question of whether Democrats will win the Senate if Joe Biden is elected President and if they do whether they will consider eliminating the 60-vote threshold of the filibuster for legislation. Democrats eliminated it for some nominees in the Obama Administration and Republicans expanded it to all judicial nominees in the early days of President Trump’s current term. With the race for the Senate a tossup, the one thing that is all but certain is a Democratic majority in the House.

In addition, there are a number of other enormously important items that are not mentioned above. Much like the Obama Administration put health care before cap and trade and the Trump Administration put tax policy above health care and immigration, a potential Biden Administration would need to prioritize a number of these issues plus immigration, health care, and a slew of others, assuming the events of the world do not supersede their ability to focus on the Biden priorities.

In summary, a Biden Administration would hew to its leader’s longtime moderate bent on issues like infrastructure and taxes, while also working to satisfy the left wing of the party that coalesced around him to ensure he was the Democratic nominee. When you look at personnel, it will likely look like a cross between a third Obama term, a cavalcade of institutionalists that have been around Joe Biden over his decades in Washington, and the government in exile Democrats have been using to push back on the Trump Administration.

Finally, all of this discussion is completely moot if the President is reelected, but as we approach an election with two choices, it is important to think about what each result could mean.

Defense Update

By Al Jackson, Strategic Consultant to Total Spectrum

There continues to a wide divide between the White House and Congressional Democrat leadership over the next coronavirus relief package, which is having a major negative impact on the nation’s defense industry. In a recent op/ed by House Armed Services Committee Chairman Adam Smith (D-WA) and Sen. Dick Durbin (D-IL), Ranking Member of the Senate Appropriations Subcommittee on Defense, both elected officials indicated that Congress “cannot panic and hand out blank checks to defense contractors.” Their concern is founded upon the premise that the Pentagon stimulus funding request is void of detail.

Pentagon officials have recently responded to the request for more detail, highlighting the essential nature of the workforce associated with the defense, shipbuilding and aerospace industrial base, as designated by the Department of Homeland Security. These critical firms need financial support of about $11 billion to support more than 100,000 direct jobs.

In a new Pentagon memo, it estimates that between March 15 and June 15 defense contractors are expected to experience $11 billion in cost increases due to supply chain issues. The Navy takes the biggest hit as it relates to shipbuilding. The document, which asks Congress to fund the services for unforeseen expenses, lists $4.7 billion for the Navy, $4.3 billion for the Air Force, $1.1 billion for the Army, $594 million for the Missile Defense Agency, and $190 million for the Special Operations Command.

The Air Force is experiencing major program delays due to the impact on the aerospace industrial base for both primes and suppliers. Programs impacted include the F-35 Joint Strike Fighter and KC-46 tanker due to facility shutdowns in the U.S., England, Italy, and Japan. These two aircraft programs will likely miss major milestones, thereby delaying delivery schedules. Additionally, the Air Force’s Joint Air-to-Surface Standoff Missile and the Advanced Medium-Range Air-to-Air Missile are being impacted by reduced workforce and facility availability.

Contrary to the initial assertion from top Democrats in the Congress that the Pentagon doesn’t need more stimulus money to support contractors, the services are concerned about large commercial companies, like Boeing and General Electric – critical to our defense industrial base – facing negative cash flow and other associated impacts from COVID-19. Data from industry is showing 30-40% inefficiency across the defense industrial base, with some sectors such as shipbuilding seeing inefficiency as high as 50-60%. At shipyards, for instance, blue-collar worker attendance ranges from just 50-70%. Other short-term sectors at risk include textile manufacturers, body armor suppliers, and small business electronics suppliers, all of which provide necessary parts for guidance systems and wiring harnesses in Army vehicles and aircraft.

According to the Defense Department, small businesses have been hit the hardest. Small businesses and subcontractors are particularly vulnerable due to fewer monetary reserves to respond to crises, as a majority of these businesses live contract-to-contract, as indicated by a 2018 Pentagon report. Only two U.S.-based companies build nearly all of the Pentagon’s missiles, and approximately 98% of the subcontractors making parts for those munitions are the only source for those items. If those businesses fail, there may not be any replacements in the U.S.

For these reasons, Republican lawmakers are pushing for the next emergency COVID-19 stimulus package to include a boost for defense spending. Leaders of the Senate Committee Armed Services and House Committee on Appropriations (Defense), in an open statement, indicated, “[s]ocially distanced production spaces, provision of PPE, self-quarantining, disrupted logistics have generated significant bills. These COVID-related effects made defense programs less efficient and more expensive, and DOD cannot redirect money from other crucial priorities to cover these costs.”

A plan unveiled by Senate Republicans late last month included more than $29 billion in new funding for the Defense Department, including more than $7 billion in funding for purchase of new equipment. Congressional Democrats have attacked that plan as containing too many items unrelated to real needs they perceive to be created by the coronavirus crisis. House Armed Services Committee Chairman Adam Smith (D-WA) in June indicated he believes the Department of Defense can handle the new costs within their existing budget. Sen. Patrick Leahy (D-VT) last month accused the Republicans of prioritizing “a wish list from the Department of Defense for manufacturing of planes, ships, and other weapons systems” over more pressing community needs.

The 177-page draft appropriations legislation unveiled last month would include funding for military helicopters, aircraft, ships and missile defense systems. The bill also includes $11 billion to reimburse defense contractors for coronavirus-related expenses, as authorized by Section 3610 of the CARES Act. Defense firms and trade associations have lobbied for this additional funding, fearing the Pentagon would otherwise have to raid modernization and readiness accounts.

As a result of the pandemic, the industry – particularly small businesses – is experiencing weapons program slowdowns, temporary factory closures, and cash flow problems. The Pentagon was been working to respond to the problems, largely by making billions of dollars in advance payments to contractors using the $10.5 billion Congress previously provided to the Department of Defense via the CARES Act.

Large system integrators such as Boeing and Lockheed Martin appear to be the major beneficiaries of procurement dollars in the proposed bill. The bill includes more than $1 billion for Boeing P-8A Poseidon maritime patrol planes for the Navy. The Air Force would receive $686 million for additional Lockheed F–35A jets, $720 million for Lockheed C–130Js and $650 million for A–10 wing replacements, which Boeing is contracted to perform.

The Army would receive $375 million more to upgrade the Double V-Hull Strykers and $283 million for new AH–64 Apache Block IIIB helicopters. The bill would boost missile defense accounts with more than $300 million for the Lockheed Martin Terminal High Altitude Area Defense (THAAD) program and its Raytheon-made AN/TPY-2 radar. Another $200 million would be to extend the life of the Ground-Based Midcourse Defense (GMD) system, for which Boeing is the prime contractor.

Opinion: New U.S.-U.K. Trade Agreement Must Prioritize American Intellectual Property

By Former Congressman Erik Paulsen (2009-2019), Total Spectrum Strategic Consultant

It looks increasingly unlikely that American and British negotiators will finalize a U.S.-U.K. trade agreement this year. When asked whether a deal could be struck by the end of 2020, one U.K. official recently responded, “Basically, no.”

No one likes to wait. But if holding out for another year leads to a better deal, then that’s certainly the right approach. Our two countries have the potential to strike a top-notch agreement that sets the standard for future international trade pacts and puts the rest of the world on notice. Negotiators would be wise to use this extra time to secure state-of-the-art intellectual property and market access protections for American innovators.

The United States and the United Kingdom are two of the largest economies in the world, and the lifeblood of the international trade ecosystem. In 2019, the United States traded nearly $6 trillion U.S. dollar (USD) worth of goods and services with foreign nations, while the U.K. exchanged more than $1.8 trillion USD worth of the same wares. Given their dominance on the global economic stage, they can deliver the most ambitious bilateral trade deal in modern history.

The robust trade relationship between the United States and the United Kingdom certainly reinforces the prospect of that. In 2018, the latest year for which data is available, U.S. goods and services trade with the U.K. eclipsed $261 billion. America is the single largest investor in the U.K. And fittingly, our British allies are also the largest investor in the United States.

American workers, businesses, and consumers benefit tremendously from U.S.-U.K. trade. Consider that British companies operating in the United States employ over 1.25 million Americans in high-paying sectors like manufacturing, technology, pharmaceuticals and more. And U.S. goods and services exports to the U.K. support more than 665,000 American jobs.

Still, this relationship has room to grow—especially when it comes to intellectual property protections.

Take the U.S. biopharmaceutical sector, which employs over four million Americans. Our innovation ecosystem produces more than half of the entire world’s new medicines, helping people across the globe live longer and healthier lives.

But it’s no simple feat. Bringing just one new drug through the development pipeline to patients typically costs billions of dollars and takes more than a decade. Even when biopharmaceutical companies commit to this investment, less than 12 percent of the medicines that enter clinical trials secure FDA approval.

The United Kingdom unfairly punishes U.S. drug companies with price controls on these expensive, cutting-edge medicines. This makes it even harder for American innovators to recoup R&D costs, which discourages them from future drug investments.

Especially now, in the new reality ushered in by the coronavirus, we cannot afford any disincentives against biomedical innovation. That’s why U.S. trade negotiators must do all they can to ensure that the U.S.-U.K. trade deal prioritizes American scientists and medicine manufacturers.

The new U.S.-U.K. deal must also include 21st-century protections for America’s creative industries. Rampant online piracy in the United Kingdom robs American recording artists, producers and film and television creators of hard-earned compensation.

In 2018 alone, the United Kingdom saw nearly six billion visits to pirated websites. And just this spring—during the coronavirus-induced quarantine—traffic to pirated film sites increased by nearly 60 percent compared to visits earlier in the winter. A robust U.S.-U.K. trade deal must include provisions that address this blatant disregard for American innovation.

Consider also America’s software industry. This sector, which supports more than 10 million jobs across all U.S. states, relies on cross-border data transfers—the digital transfer of information between servers in different countries.

Since the majority of the world’s population lives outside the United States, our national competitiveness will depend on strong safeguards for cross-border data transfers. It’s imperative for the United States and the U.K. to put robust protections in place to remove costly barriers for digital businesses overseas.

Amid the coronavirus pandemic, a U.S.-U.K. agreement replete with strong intellectual property protections would provide our nation some much-needed economic security.

Forty-five million Americans’ livelihoods depend on IP-intensive sectors—from tech to manufacturing, music to movies and even agriculture to chemical production. In total, America’s IP is worth at least $6.6 trillion.

It’s disappointing that the U.S. and U.K. officials have yet to reach a comprehensive trade agreement. But if we have to wait, let’s use that time to hammer out the best deal possible—one that serves as a gold standard for all future trade agreements.

This article originally appeared in Newsweek magazine on August 19, 2020. The views expressed in this article are the writer’s own.

Highlights: Congressional Markups and Hearings

Week of September 14, 2020; all times EDT.

Monday, Sept. 14

1 p.m. House Rules Committee remote meeting to prep H. Res. 908 (116), which would condemn anti-Asian sentiment related to Covid-19, and three education and labor bills, including H.R. 2694 (116), which would seek to ensure workplace accommodations for pregnant workers.
Noon. House Oversight and Reform Government Operations Subcommittee hearing on the U.S. Postal Service.

Tuesday, Sept. 15

10 a.m. Senate Health, Education, Labor and Pensions Committee hearing on compensating college athletes.
10 a.m. House Oversight and Reform Civil Rights and Civil Liberties Subcommittee remote hearing on white supremacy and local police departments.
1 p.m. House Armed Services Readiness Subcommittee virtual hearing on DoD use of PFAS.

Wednesday, Sept. 16

9:45 a.m. Senate Commerce, Science and Transportation Committee markup to consider pending legislation, including S. 3969, which would make a number of changes to the FAA’s aircraft certification in the wake of the Boeing 737 MAX crashes and grounding, as well as vote on pending nominations.
10 a.m. Senate Appropriations Labor-HHS-Education Subcommittee hearing on coronavirus response efforts. CDC Director Robert Redfield and Assistant Secretary of HHS for Health Brett Giroir, among others, testify.
10 a.m. Senate Energy and Natural Resources Committee hearing on pending FERC nominations.
10 a.m. Senate Environment and Public Works Committee hearing on the Navigable Waters Protection Rule under the Clean Water Act.
10 a.m. House Energy and Commerce Environment and Climate Change Committee virtual hearing on a “low-carbon recovery.”
10 a.m. House Foreign Affairs Committee remote hearing on the Trump administration’s firing of the State Department inspector general.
10:15 a.m. Senate Homeland Security and Governmental Affairs Committee business meeting to consider subpoenas and vote on pending nominations.
Noon. House Financial Services Committee remote hearing on the Federal Housing Finance Agency’s response to Covid-19.
2:30 p.m. Senate Budget Committee hearing on federal housing assistance programs.

Thursday, Sept. 17

9 a.m. House Homeland Security Committee hearing on threats to the homeland.
9:30 a.m. Senate Armed Services Committee hearing on the National Nuclear Security Administration.
10 a.m. Senate Health, Education, Labor and Pensions Committee hearing on the Free Application for Federal Student Aid.

Senate Homeland Security & Governmental Affairs Committee Hearing

Friday, August 21, 2020 – 9am

“Examining the Finances and Operations of the USPS During COVID-19 and Upcoming Elections”

Reported by Ramona Lessen, Total Spectrum

NOTE: This report has been trimmed to comply with space limitations and modified to improve clarity.

Witness:

Louis DeJoy, Postmaster General, U.S. Postal Service

Members:

Ron Johnson (R-WI) – Chair

Rob Portman (R-OH)

Rand Paul (R-KY)

James Lankford (R-OK)

Mitt Romney (R-UT)

Rick Scott (R-FL)

Mike Enzi (R-WY)

Gary Peters (D-MI) – Ranking Member

Tom Carper (D-DE)

Maggie Hassan (D-NH)

Kamala Harris (D-CA) – did not participate

Kyrsten Sinema (D-AZ)

Jacky Rosen (D-NV)

Josh Hawley (R-MO)

Opening Statement – Postmaster General DeJoy (testimony)

Senator Ron Johnson (R-WI) (opening statement): I thank Postmaster General DeJoy for being with us. Unfortunately, he has found out that it is a thankless task and has been subjected to character assassination. I hope we can stick to the facts today. The Postmaster General is not appointed by President Trump. A bipartisan Board of Governors engaged a professional search firm; the bipartisan board unanimously approved Mr. DeJoy. He reports to the board, not the President. The postal service has $15.1 billion cash on hand following a better performance during the pandemic. Due to a surge in package delivery, it is $1.5 billion higher this year than last. Long-term for the postal system is bleak and has been for years. First class mail volume has declined dramatically. It does not have the flexibility to make dramatic reductions. Pension fund and health care liabilities of $120 billion are now unfunded. Taxpayer bailout has been proposed in the past. For years, GAO inspector general reform fixes have not been implemented. One highlighted is the out of control use of overtime. $4 million in overtime costs – those costs represent 85% of the USPS losses. USPS has more than enough capability to process votes.

Senator Gary Peters (D-MI) (opening statement): We have a lot of questions for you. We have had a health and economic crisis. Now we are facing a mail crisis. For many communities, the postal service is a lifeline, especially in communities where they don’t deliver. Mr. DeJoy, you have not delivered. For two centuries, we have been able to rely on the USPS. This has not been the case during your two months as the head of the organization. Your new implementations have caused delays. In July, I started hearing reports about how your changes were slowing down the mail. Despite multiple requests which took more than a month to respond directly. You have brushed off these delays. Let me tell you about the people who bear the brunt of your decisions. (Cited individual constituent issues). I have received more than 7500 reports of delays in just 2 weeks. Mr. Chairman, I enter into the record what my investigation has found. Mr. DeJoy, your decisions have cost Americans – you owe them an apology and some clear answers today. Can the damages you have done already be reversed?

Q/A

Sen. Johnson: Let’s talk about the election notice sent out by the general counsel before you became the head and the one after. What is that notice?

DeJoy: I emphasize that there have been no changes in any policies regarding election mail. As you stated, this letter was sent out before my arrival to educate state election boards so American people have an awareness how to successfully vote. This was sent out by the former Postmaster General. During the pandemic, there was concern about the increase in volume, so we wanted to emphasize the mail processing procedures of the USPS. We have established a task force and want to assure the American public that we will have a successful election.

Sen. Johnson: Does the USPS have more than enough capacity to handle delivery capabilities?

DeJoy: We deliver 432 million pieces of mail a day. Mail volume is down 13-14% this year. We will have additional resources available on standby. If everyone complies with the mail process, there will be no issue. There is slack in the system that will carry a good part of deviations. The USPS is ready, the Board of Governors are ready. We have a bipartisan committee to interact with us moving forward.

Sen. Johnson: Retirement of blue boxes. 1st class mail is down – almost cut in half. If you have declining businesses, address the box retirement and storing machines.

DeJoy: There are 140,000 collection boxes. Over the last 10 years, about 35,000 have been removed. It is a data driven method. Since my arrival, we have removed 700 collection boxes – and I had no idea that this was a process. When I found out about it, we looked at the excitement that the box retirement was causing and stopped it. It is a normal process – been around 50 years. The last 10 years, we have pulled back 50,000 of the machines they are referencing. We evaluate our machine capacity. The mail volume is dropping very rapidly – especially since COVID. Package processing is increasing. We have 100’s of these machines everywhere and no drain on capacity. It is not a critical issue.

Sen. Johnson: Tell us about the operational changes you were making – excess costs, making sure that the system adheres to time deadlines.

DeJoy: When I arrived, I spent the first three weeks studying the organization, trying to get an understanding about how decisions have been made and how the mail moved through the process. I spent hundreds of hours analyzing the process. One of the first big changes I embarked upon was how to get the management team to align with my analysis. We reorganized the organization on process improvements, new revenue, and costs. The other change, I received a report from the Office of the Inspector General on late deliveries. I needed to look at positive impact on cost savings. We run 45,000 trips a day and 5,000 a day in extra trips. FedEx and UPS run on time. Transportation network is the glue that keeps everything together. We had all area VP’s involved with this change. I submitted my report – we went from 88% on-time to 97% on-time delivery. Late trips dropped from 3,500 to 600 a day. Within a week, we made that change. Our production process was not aligned with this new schedule. So, we had to delay some mail. But the change was to merge with our transportation schedule. This is a key to improving our service.

Sen. Peters: The men and women who work at USPS do so with professionalism and integrity. These essential workers are doing a great job. As we have been going through this issue, they are frustrated with recent policies. I have received over 7,500 complaints. I shared stories of hardships. You acknowledge that some of the changes have delayed the mail and people have been hurt.

DeJoy: I recognize the quality capability of the USPS workers. I’m here to help.

Sen. Peters: You have announced suspending some of the changes. I need yes or no responses. Are you suspending extra trips?

DeJoy: No.

Sen. Peters: You are limiting overtime – are you or is that suspended?

DeJoy: We never limited overtime. OT ran 13% before me and it is 13% now.

Sen. Peters: Post Office closures?

DeJoy: There was a process for closures and there was a reaction and so I suspended that process.

Sen. Peters: Will processors be brought back?

DeJoy: No, not necessary.

Sen. Peters: Under oath, you haven’t taken an action regarding political situations.

DeJoy: I was greatly concerned about all of the political noise we were hearing. I have had weekly reviews since before all of the excitement came out. The insinuation is outrageous.

Sen. Peters: Will you allow election mail to move as first class mail?

DeJoy: We will deploy any election mail in some cases in advance of first class mail.

Sen. Rob Portman (R-OH): This is an important and timely hearing. During the pandemic our letter carriers are more appreciated than ever. There has been a lot of misinformation out there. One fact is that you started 67 days ago. Blue boxes and sorting machines – that plan started before you got there. That’s helpful to know. You were appointed by the board of governors, a bipartisan group. You have a passion for logistics. Long-term for USPS is not pretty and that has been true for a long time. Change requires legislation. Everybody knows you are in trouble. A lot of this comes back on Congress. Immediate issue is to assure that the election works well. We want an election that is well-run and all votes are counted. Do you support absentee voting and voting by mail?

DeJoy: I voted by mail for a number of years. We will process every ballot on time. Yes, I support it.

Sen. Portman: What advice do you give voters?

DeJoy: Vote early.

Sen. Portman: Important to tell people. If you request absentee ballot be sure that it can be delivered on time. I am concerned about delayed delivery of mail (cites a veteran who didn’t get his prescription). Medications shipped through the mail – how can we correct problem?

DeJoy: We are working feverishly to get our delivery process current. We serve 161 million people. We trying to improve on the process.

Sen. Tom Carper (D-DE): We get a constituent service report every week of complaints about postal service. They coincide with when you began in the office. It is all over the country. Maybe it is a coincidence. We have a President who wants to suppress the vote. The President wants to get rid of voting by mail. People are skeptical. After the public uproar about delays and failed delivery of mail. Give me yes/no – are you considering dramatic services changes that we just learned about last night?

DeJoy: Yes.

Sen. Carper: Do you support the federal appropriations for the USPS for COVID related losses?

DeJoy: Yes.

Sen. James Lankford (R-OK): Appreciate you have stepped up to lead an organization. Congress has not done its job. You have taken work from the Inspector General – people are beating up on you for doing the work to meet the changes that others have determined need to happen. Were you locking up boxes in Burbank to prevent people from voting?

DeJoy: The stories I have heard are remarkable. I have nothing to do with collection boxes.

Sen. Lankford: So any boxes that have been retired in the past 10 years – are now your responsibility.

DeJoy: We have stopped reducing postal hours, stopped shutting down machines and stopped removing blue boxes.

Sen. Lankford: Will that change after the election? Are we still going to work on efficiency within the USPS?

DeJoy: We need to be self-sustaining. Now we are not. We have a $10 billion shortfall. There is a path that we need to walk with the help of the Congress with new strategies. We have $10 billion gap to bridge. Alaska bi-pass plan – that is on the table. If you just throw $25 billion at us, we will be in the same situation. Our mission is to be self-sustaining. We need help from Congress.

Sen. Lankford: Congress has been unwilling to act on USPS reforms. There is a fear that any change will disrupt distribution areas in a state I live in or PO in my area, so it has been blocked. USPS has made severe cuts and there is concern that ballots won’t be able to get out. A letter was sent out encouraging election commissions to get ballots out early. Do you have the capacity for Christmas and Mother’s Day on-time delivery?

DeJoy: Yes, we have capacity.

Sen. Maggie Hassan (D-NH): Will you commit to commit 95% of election mail within 1-5 days?

DeJoy: Yes.

Sen. Hassan: Sorting machines. In Manchester, four sorting machines have been taken out of service. Manchester has only one machine that has been sold for scrap. You have suspended the process.

DeJoy: I didn’t know about that.

Sen. Hassan: I need you to commit to a plan to make sure that every piece of mail will be delivered on the day it arrives. Will you commit to looking into this and get back to me in writing about getting these sorting machines back up and running?

DeJoy: I will respond to your request.

Sen. Rick Scott (R-FL): Talk about why you are uniquely qualified and why you were picked by the board.

DeJoy: There are two things, two actions I have taken. Board will have to speak to their evaluation of me. I have experience with logistics of large operations, managing big projects for large corporations. Also, my commitment to public service, my engagement in community and the nation. I did not come in with a team. I work with the existing management team in trying to move forward to have improvement in service and grow revenues. That is something I have done all my life. There are accusations that this is not a business. When you have to deliver service, we need to take actions on meeting costs. I have a plan for the success of the USPS. If you look at where our reach is on a daily basis, it is impressive.

Sen. Scott: In your business life, did you have to perform for your customer?

DeJoy: Our contracts are 99.98% on performance. The attitude and energy is here at the USPS. We have not had the alignment and expectation to do that. I bring that to the table.

Sen. Scott: Do you need a massive bailout to get mail out on time for the election?

DeJoy: We need reform and change in Postal Regulatory Commission (PRC) regulation. We need to be reimbursed for our costs. We still deliver to 99% of our people. We continue to do what we are supposed to do at a significant cost impact. We need a sustainable model. In this case, we need some compensation.

Sen. Kyrsten Sinema (D-AZ): This past week, my office has heard from over 18,000 people in Arizona. Arizona has led the way on safe mail voting over the years. Prescriptions take too long to arrive. It is critical that people get the service they rely on. 2.4 million ballots will be processed in Arizona before the election. I have been working with the Secretary of State. Will local postal managers be authorized to make decisions to deliver ballots so that the post office doesn’t fall behind?

DeJoy: Yes, aggressive efforts.

Sen. Sinema: What process do you have?

DeJoy: We have had 50,000 contacts with election officials around the country. We are making videos online with the union leadership to communicate our commitment. We will continue to work with the state election boards. We have a committee on the postal board to oversee what we are doing. In September, we will send a letter to every American about our process for the election. Appreciate the question. I feel good about the whole organization, and am proud of what we are doing.

Sen. Sinema: Postal processing is critical. Is the USPS capable of processing election mail?

DeJoy: We are not making any changes until after the election.

Sen. Sinema: Re: Cherry Bell processing plant – if there are consolidations or closures, would you require new analysis before consolidation or closure?

DeJoy: I’m not totally familiar with it, there is a process we go through before closing a facility. If that facility gets on the list, I will reach out to you in advance. It is not an easy thing to do. We will keep you posted.

Sen. Sinema: We want to make sure decisions are made with up-to-date data as there has been a large growth in that area. Please take into account negative customer experiences as you make changes in the future.

DeJoy: We will.

Sen. Rand Paul (R-KY): Thanks for taking a thankless job and dealing with an impossible problem. My opinion is to not give you more money until there is reform. We need fewer employees. Mail keeps dropping, so you need fewer employees. Need to look at easiest way to receive personalized service. People should be told of the problem of massive deficits. List some of the legal impediments you have. What would you do that you are unable to do because you are a government entity?

DeJoy: I’m more optimistic than you are at our ability at getting to a close break even. The legislative reform – integration of Medicaid and pension reform. I would like more pricing freedom. I would like unfunded mandates to be addressed. We need to adhere to our schedules that will improve performance. Once we are at 97% on-time we will generate new business revenue. We have a plan on how to pull this off.

Sen. Mitt Romney (R-UT): I appreciate the thousands of letter carriers. The USPS has made our voting system very reliable. Reliable valid voting is essential and with COVID, mail is essential to our voting system. Do you have a high degree of confidence that ballots mailed seven days before the election – are you confident that those ballots would be received?

DeJoy: Extremely highly confident that they will be processed.

Sen. Romney: I hope people who see this hearing, that if they get their ballots in seven days before the election, the person running the USPS is highly confident that they will be processed on time. Are delays more prevalent in rural areas?

DeJoy: Employee availability has dropped by 4%. Hot spots like Philadelphia, Detroit – it is as high as 25%. We have days where we are short 200 carriers.

Sen. Romney: I look forward to seeing a plan developed by you for how we can get the USPS to be more economically managed but maintain a level of service. I expect you to be up to the task. I am anxious that Congress demand legislative changes. You are welcome in our committee to let us know what we need to do to accomplish what you need to do.

Sen. Josh Hawley (R-MO): Will the USPS have enough cash on hand through the November election?

DeJoy: Yes.

Sen. Hawley: Your testimony is that the USPS has the resources and has what it needs to deliver the mail through the November election, right?

DeJoy: Yes. Plenty of cash to operate through the election.

Sen. Hawley: What additional cash moving forward?

DeJoy: We need legislative reform. $10 billion cost on COVID expense. We are negotiating with Treasury to get long-term financing to buy new vehicles.

Sen. Hawley: Re: CARES Act – when the $10 billion (loan) would be made available to you. Give us an update.

DeJoy: We have the terms of agreement. When we request it, the issue of borrowing money is how to pay it back. We are evaluating this.

Sen. Hawley: What would you justify it for?

DeJoy: Cannot use it for capital but can use for operating costs.

Sen. Hawley: You would like additional authority toward vehicles.

DeJoy: We have many 30-year-old vehicles. The loan is not for capital and longer term in 5 years.

Sen. Hawley: Of the reforms you implemented, what changes were in response to the OIG findings?

DeJoy: They were a remarkable gift. The system was out of balance. 40,000 trucks a day were running – once you get below 90%, you can’t depend on anything. Getting the transportation network aligned and saving $1-$2 billion was a Christmas present.

Sen. Hawley: Missouri has a large amount of rural areas, so it is vital to me that any reform going forward preserves rural delivery service. Are you committed to protecting rural delivery and rural post offices?

DeJoy: We have an unbelievable asset in our letter carriers.

Sen. Johnson: You talk about the transportation being out of sync. You said your on-time trips went from 35,000 to 39,000 – so it went from 89% to 97%. If the letters are not getting to the trucks – they go in the next day’s delivery.

DeJoy: The aligned schedule – there are a lot of imbalances as we went through the process. The big thing is to get transportation schedule aligned. Mail on the truck is also late mail. We found an imbalance.

Sen. Johnson: You came in and identified process breakdowns and made improvements. COVID is here. Delivery delays are related to COVID. In theory, your new process will improve going forward.

PM: We had a 4-5% on our service level. Once that is aligned, we will have a more high-performance system. This is doable.

Sen. Carper: We have heard about reforms that need to be made. Fleet update. There is ability to come up with a bipartisan consensus. Communicate and compromise. I reached out to the Postmaster General for weeks and couldn’t get a call back. You need to be willing to communicate. I urge you to communicate. Reform is a shared responsibility.

Sen. Peters: Thank you for appearing before us on short notice. I have been hearing real concerns. These are people coming forward talking about delays, medicine not available. These complaints are real. It is the job of the Senators to be sure that Americans are being heard.

Sen. Johnson: I don’t deny that many of these complaints are legitimate, but there are others that are being made for political reasons. I look forward to separating the fact from the fiction. There is a lot of false narrative on the issue. Let’s work in good faith. Thank the USPS employees for their services.