This Week in Washington

Latest news from Washington, D.C. produced by Total Spectrum/SGA exclusively for members of the Arizona Chamber of Commerce & Industry

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Thanks for your interest in Washington, D.C., and thanks for reading This Week in Washington

Patrick Robertson starts off this edition with his Washington WhispersCongressman Erik Paulsen writes about the important need to increase private investment in renewable energy. Al Jackson updates us on Defense and related appropriations issues, and I continue surveying the scene for this year’s legislative calendar and the November elections in today’s Heard on the Hill. 

We’ll be back in two weeks for the next issue of This Week. Stay safe.

Steve Gordon

Total Spectrum Managing Director

Washington Whispers

By Patrick Robertson, Total Spectrum Strategic Consultant

If you’re anything like me, you can be excused for thinking January has as many as 150 days in it this year. As of this writing, I checked, there are a handful of days left in this typical 31-day January. However, in Washington, the year is both struggling to start and potentially already over, depending on your point of view.

Congress struggled to come back in early January amid a combination of snowstorms, Omicron outbreaks, and funerals for former Senators.  As a result, the legislative month didn’t really start until the middle of January when the Senate failed to move a large voting reform package supported by all Democrats but universally opposed by Senate Republicans. Senate Majority Leader Chuck Schumer (D-NY) then moved to change the rules of the Senate with a simple majority to break a Republican filibuster. That vote failed when Senators Kyrsten Sinema (D-AZ) and Joe Manchin (D-WV) opposed it.

Before we get too far into the rest of the year, let’s talk about whether this was really a filibuster or how the modern Senate operates. Republicans did not stop Democrats from debating the bill. In fact, Republicans spoke against the bill and then when Democrats moved to invoke cloture on the bill, a motion designed to end debate, Republicans voted no. Essentially Republicans blocked the Senate’s ability to have an up-or-down vote because there were not 60 votes to invoke cloture and “break” the filibuster.

But the modern Senate does not filibuster at all.  Once cloture was not invoked, the Senate left town and moved on to something else. There is no “Mr. Smith Goes to Washington” marathon debate, or former Senator Harry Reid’s reading of his book about Searchlight, Nevada to hold the Senate Floor. In fact, the talking filibuster is a thing of the past.

But so is the majority vote in the Senate. When the cloture process started it was used sparingly. Then in some of the movie-worthy moments, Senators spoke for hours to avoid the Senate moving to bills they opposed. Now, every vote in the Senate is subject to 60 votes as a matter of course, which has come to pass over the last four decades or so.

Some have tried to reform the process and Democrats used what was called the “nuclear” option during President Obama’s term to confirm Executive nominees. It was expanded to include judges at lower courts and eventually, during President Trump’s term, the special rules expanded to include Supreme Court Justices. While Senate Democrats failed to expand the mandate to a limited scope of legislating (although the scope would not have remained limited in the years to come), we all suspect this debate will happen again in the Senate.  It will be likelier to succeed if the Senate is more partisan than the even 50-50 split. 

With the rules change debate behind the Senate with no prospect for success this year, Democrats need to decide what they want to accomplish the rest of the year. Some contenders include:

  • Going back to the Build Back Better (BBB) negotiating table with Senator Manchin, a tough prospect for many as the West Virginia Democrat has been out of the negotiations since before Christmas.
  • Breaking BBB into smaller chunks and working around the difficult budget reconciliation rules to try to pass smaller bills, maybe even some on a bipartisan basis.
  • Focus on some issues important to the Democratic base in the House, like immigration, abortion rights, pay equity, labor issues, etc., to try and show what Democrats would do if they maintain control after the midterm elections.
  • Look to find common ground with Republicans on issues where there is common ground – a China bill, the annual appropriation process, disaster relief, etc.

When Republicans look at this list there is very little they are excited about. In fact, a number of Republican pundits have posited that the party would be better off saying no to everything, allowing Democrats to fail, and winning in the midterms. As a result, many things Democrats want to accomplish on a bipartisan basis may have run into the buzzsaw of election year politics. If you believe the current polls, things are hopeless for Democrats to maintain their majorities, but January and November are a long time apart and not all the candidates are set yet. This column will further discuss the politics of the midterms later in the year.

As Democrats weigh those and other options, the Omicron variant of COVID-19 is raging across the country, although it may be receding, and Russia is at least considering invading the Ukraine. So as those dynamics change you can throw all of the above out the window and Congress will have to do what so many Americans have done throughout the last two years – pivot – to deal with new challenges and changing dynamics. This week alone, we have seen that the announced retirement of Supreme Court Associate Justice Stephen Breyer can scramble the legislative calendar just as quickly as it is set.

Stay tuned to this space in the coming weeks for more analysis and deep dives into different policy areas.

Heard on the Hill

By Steve Gordon, Total Spectrum Managing Director

I usually don’t write articles for back-to-back issues of This Week in Washington, but I want to continue setting the stage for this legislative year in Congress and November’s off-year elections.

Small and medium-sized wins are still wins

The President and Democratic Congressional leaders planned an extremely aggressive agenda for 2021, but it didn’t match the narrow majority Democrats had in the House and the 50-50 Senate.  Aggressive agendas either turn into big wins or big misses. Babe Ruth hit a lot of home runs, but he struck out a lot too.

Majority Leader Schumer and his Democratic caucus are currently spending a fair amount of time confirming federal judges, much like Republicans did under President Trump, while they rejigger their agenda. Democrats have already confirmed the appointment of 42 judges to the federal bench – 29 on district courts and 13 on circuit courts.

There is wide speculation that Build Back Better is at best on life support. Democrats are looking for a legislative win, and some are turning to the U.S. Innovation and Competitive Act which was sponsored by Majority Leader Schumer and Senator Todd Young (R-IN). This bill would authorize $100 billion for technological research over a five-year period in the fields of artificial intelligence, semiconductors, advanced communications, biotechnology, and advanced energy. It also would authorize $10 billion to create a supply chain control program. The bill was created to counter China’s aggressive growth, and China warned of retaliation if this legislation ever becomes law.

The U.S. Innovation and Competitive Act passed the Senate on June 8th of last year with a 68-32 vote.

The House will soon be asked to consider H.R. 4521, The America Competes Act. House Republicans are upset that they were not consulted on the writing of this bill, which is accurate. House Democrats want to bring the bill to the floor as early as next week with the goal of getting a compromise to the President as soon as possible.

Retirement Count in the House

Twenty-nine Democratic Members and 14 Republican Members of the House have announced that they will not run for reelection.

Retirement Count on the Supreme Court

Both NBC and other publications announced this past Wednesday morning that Associate Justice Stephen Breyer plans to retire at the end of the current term. Yesterday Justice Breyer went to the White House and made his retirement plans official. President Biden had promised during the campaign that he would nominate an African American woman to the Supreme Court. Justice Breyer’s retirement will allow the President to fulfill that commitment and reenergize the African American community and stimulate get-out-the-vote efforts in November.  

The late Majority Leader Harry Reid got Senate rules passed that make Supreme Court nominations not subject to a filibuster. This rule change helped then-Majority Leader McConnell confirm three nominees to the U.S. Supreme Court.

Looking Ahead #1

Speaker Nancy Pelosi announced Tuesday that she would be a candidate for reelection this November. She didn’t say whether she would be a candidate for Speaker or Minority Leader in 2023.

It is exceptionally hard to imagine her in Congress but not in leadership next cycle, and it is equally easy to imagine that there are a great number of Democrats who are getting tired of biding their time.  One scenario is that Congresswoman Pelosi avoids becoming a lame duck by remaining as Speaker through the end of 2022, wins her reelection campaign, and then announces her retirement from Congress in January 2023.

Republicans don’t agree with her most of the time, but they do admire how she controls her Democratic Caucus, which has become dominated by a new class of progressives.

Looking Ahead #2

Minority Leader Kevin McCarthy is the odds-on favorite to become Speaker of the House if Republicans take back the House in 2023. Minority Whip Steve Scalise is available as an alternative but is not outwardly running for it. Other names are occasionally mentioned, but not seriously.

Leader McCarthy’s team is led by Dan Meyer, his Chief of Staff. He was previously Chief of Staff to former Speaker Newt Gingrich from January 1995 to December 1996 and was the head of Legislative Affairs in the White House for President George W. Bush from March 2007 to January 2009.

Looking Ahead #3

Senate Republican Leader Mitch McConnell would like nothing better than to regain the title of Majority Leader. There is another title he wants: the longest serving party leader in the history of the U.S. Senate.

The title is currently held by former Senator Mike Mansfield of Montana who served for 16 years as Majority Leader. Senator McConnell has served from 2006 to the present as either the Majority Leader or the Republican Leader, so he will surpass Senator Mansfield during this current term.

Minority Leader McConnell is up for reelection in 2026.

Increasing Investment in Renewable Energy

By Congressman Erik Paulsen, Total Spectrum Strategic Consultant

President Biden’s Build Back Better plan may be stalled, but there is still a chance for greatly scaled back legislation that addresses a few of the President’s priorities, particularly clean energy and community development. Proposals that could be included in such legislation are enhanced tax incentives to strengthen private sector investment. 

The Administration aims to replace fossil fuels with clean energy by 2050. Experts differ on the feasibility of reaching that goal, but to even come close, it will be critical to expand the tax equity investor base beyond large corporations to individuals, private equity funds, and small closely held corporations. Growing the pool of potential tax equity investors will increase competition in the tax equity market and result in a more robust amount of tax equity to be invested in projects, particularly smaller projects which large corporations tend to avoid. 

Individuals, private equity funds, and small corporate investors are hamstrung by current law limits on their ability to utilize clean energy and community development incentives enjoyed without limit by large corporations. The principal limits are the passive activity loss and credit rules that generally allow individual taxpayers – who often invest through private equity funds – and closely held corporations to use credits and losses from “passive activities” (those funds they do not manage) against income from other “passive activities”. As a result, they can’t use losses and credits generated by tax credit projects against other income, such as salaries and portfolio income. Large corporations are not subject to the same restrictions. 

Here’s a perfect example. Mr. Brown, a rancher in Arizona, and ABC Corporation, a widely held corporation, each want to invest $20,000 in a major solar energy project. The IRS code currently provides a tax credit for investments in solar energy projects. The ABC Corporation decides to make the investment because the tax credit will reduce the taxes from its operations by $20,000 even though it will be only a passive investor in this project. Mr. Brown cannot use an investment in this project to reduce his taxes on the income from his ranching business because he will not be actively engaged in the management and operation of the solar energy project, so his tax advisors counsel him to take a pass. 

This is a basic inequity, and it prevents most private sector investment from individuals, private equity funds, and small corporate investors. A way to balance the scales would be to change the statute and have the proposed legislation state that losses or credits derived from tax credit projects should not be considered a passive loss or credit. 

Legislation is being developed to address these inequities under the passive loss rules as well as other limits on the availability of tax incentives to individuals, private equity funds, and non-corporate investors. It’s not too late for Congress to take up such proposals that could enjoy bipartisan support. Both parties have a stake in expanding the investor base in renewable energy to private equity – it can be win-win on all fronts.

Defense Update

By Al Jackson, Total Spectrum Strategic Consultant

Acquiescing to their colleagues advocating for an increase in defense spending, the House Committee on Appropriations earlier this month signaled their willingness to accept a topline of $740 billion for the Pentagon. This is $25 billion more than requested by the Administration and matches the funding level in the recently enacted National Defense Authorization Act. Leaders of the House and Senate Appropriations Committees are attempting to forge a deal to fund the Pentagon and other federal agencies for the remainder of the current fiscal year. 

The government is currently operating under a continuing resolution (CR) that is due to expire on February 18, 2022. Appropriations Committee staff recently indicated that a deal is close but may not be finalized in time to pass legislation before February 18, which may prompt another short-term CR. Throughout the FY2022 budget process, Democratic House Appropriations leadership stayed close to the $715 billion budget request of the Administration. Senate appropriators, however, released a draft bill in October that endorsed the higher number of $740 billion. 

With the NDAA legislation number of $740 billion and the Senate mark of the same amount, the lone holdout was the House Committee on Appropriations. It appears the $740 billion number will prevail for the Pentagon when a final deal is reached on an Omnibus FY2022 spending bill. Leaders of the various branches of the Armed Services, the defense industry, and think-tanks continue to put pressure on Congress to finish their work, as the prospects of more CRs have many concerned, particularly amid recent aggressions by Russia and China.  

At a January 12 House Appropriations Committee hearing about the effects of a potential year-long CR, leaders of the Army, Navy, Air Force, Marine Corps, and Space Force warned such a move would hinder the military’s efforts to compete with China by stalling new weapons like hypersonic missiles. “CRs effectively prevent modernization at speed,” said Marine Corps Commandant General David Berger. “We actually stand to be outpaced by China — not because of their speed but because of our failure to comply with our own budgetary processes.” Chief of Naval Operations Admiral Mike Gilday echoed similar sentiments. “The price of Fleet readiness is going up. Manpower, operations, and maintenance costs, which make up almost 60 percent of our budget, continue to grow above the rate of inflation. Making matters worse, inflation rose and remains at 6-8%, well above the historical average. This will likely exacerbate all of our readiness costs.” 

According to the testimony of Army Vice Chief of Staff General Joseph Martin, a year-long CR would have a $12.9 billion impact on the service, including $9.2 billion in misaligned funds. That includes a $2.6 billion impact across 147 programs and projects to include signature modernization efforts and priorities. In a year-long CR, the Air Force would lose up to $3.5 billion in purchasing power, including a $2.3 billion cut to operations and maintenance that could force the service to cut flying hours and shut down squadrons. 

The lack of a FY2022 deal as a baseline for defense amid escalating inflation presents a huge challenge for Pentagon budget planners, who are drafting the FY2023 budget request. This could lead to the Administration again making a flat budget request, potentially costing the Pentagon billions in buying power, as a year-long CR would yield $11 billion in lost growth, while 7% inflation would result in another $50 billion in lost buying power according to defense consultant Jim McAleese of McAleese & Associates. 

As it relates to the ongoing Covid pandemic, U.S. District Judge Reed O’Connor earlier this month stopped the Department of Defense from punishing 35 Navy sailors for refusing to take the Covid-19 vaccine. To date, about 1 million active-duty service members have received at least one shot. Those who don’t comply can be discharged under honorable conditions. In December, a group of 47 Republican lawmakers filed an amicus brief supporting the lawsuit, which was prompted by the denial of religious exemptions for the servicemen and women.

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