The Senate was unable to move forward a proposed stimulus bill (see below) but did approve various judicial nominations. The House scheduled no votes this week.
Both the Senate and House will focus on passing a bill to extend funding for government agencies after the current fiscal year expires on September 30 (see below).
The Next Stimulus Bill.
Senate Republicans attempted to pass a targeted $500 billion stimulus bill this week, but Democrats blocked the effort yesterday. Therefore, efforts to craft the next—and perhaps final—round of bipartisan stimulus measures to offset the health care and economic effects of COVID-19 remain at a stalemate. Key provisions of the rejected bill include funding for schools to more safely reopen, an expansion of the Paycheck Protection Program (small business lending program), additional assistance to the unemployed and liability protection for schools and businesses as they reopen. Despite the current stalemate, negotiations will continue with a hope that stimulus measures can be added to the continuing resolution that must be enacted by both the House and Senate this month to avert a government shutdown (see below). Throughout this summer, we have been fairly bullish on the prospects of another stimulus bill passing, but the current situation seems dire. We sense no urgency among members to pass a bill and very little appetite by either side to compromise. This could change in the weeks ahead, but as of today we do not see another stimulus bill passing before the November elections.
Government Funding and Potential Shutdown.
Congress must pass and the President must sign legislation to fund government agencies by September 30 if they are going to operate in the new fiscal year, which begins on October 1. Lawmakers have learned that a shutdown of government can be politically toxic, and we are very confident a “continuing resolution” will pass this month that will extend current levels of funding into the next fiscal year. This funding will likely last until the end of December, which means Congress will have to enact another round of spending before that time. There will be great pressure for stimulus measures to be added to this larger funding bill, but we believe that is unlikely at this point.
Following the death of George Floyd, there has been significant focus in Washington on the need for police reform legislation. The House passed a bill, but an effort by Senate Republicans to debate and vote on its bill (sponsored by South Carolina Senator Tim Scott (R-SC)) was blocked by Senate Democrats. This stalemate triggered an additional rift between members of both parties who truly support meaningful reforms, but there are signs that this tension is easing. In fact, the Democratic and Republican positions on police reforms are not that different. The only remaining sticking point is qualified immunity, which gives police limited liability protection against actions taken while on the job. That liability protection will very likely be clarified and tightened going forward as negotiators try to hash out a compromise. We believe a final bill will be teed up for consideration but not until after the election. At that time, a bipartisan bill could move forward, though Democrats may wait until 2021 if the election results put them in a better position to pass a bill more to their liking.
We are often asked what “October Surprises” could pop up and impact the election results. If we knew the answer to that question, those issues wouldn’t necessarily be surprises. The reality is that both campaigns (and allies of those efforts) want to generate October surprise announcements that favorably impact their candidates, especially in what is likely to be a close race. Bob Woodward’s new book, which includes quotes from President Trump about downplaying COVID-19 early in the crisis was likely timed for such a purpose. As was House Intelligence Committee Chairman Adam Schiff’s (D-CA) announcement this week about a hearing on a whistleblower at the Department of Homeland Security who is alleging the politization of DHS activities by the President. Republicans hope that US Attorney John Durham’s investigation into the activities of the FBI and Department of Justice with respect to alleged ties between the Trump campaign and Russia in 2016 will outline some possible mischief during the last Obama-Biden term. Or that the various investigations into Hunter Biden will materialize into negative publicity for the former vice president. The more certain high-impact events over the next 53 days will be the three debates between the two candidates (on September 29, October 15 and 22) and news about the progress in the development of a COVID-19 vaccine that may bring relief to voters who may finally see light at the end of the pandemic tunnel.
A Commodity Futures Trading Commission (CFTC) subcommittee focused on climate risk in financial markets issued a long-awaited report this week. Among other things, the report recommends that the US develop a price for carbon emissions and that US financial regulators incorporate climate risk into their remit. The subcommittee’s report follows a broader study by Senate Democrats on climate action that also covered financial regulation. That report advocates for a recommitment to the Paris Climate Agreement, dramatic reductions in US carbon emissions and substantial federal spending to address climate change and promote green jobs. These and other reports outline an ambitious policy agenda on climate issues that likely would be pursued by a potential Biden administration and Democratic Congress. Some priorities would require legislative changes, which may be difficult to come by in a Senate that likely will continue to be tightly controlled, while others are regulatory initiatives that generally would be easier to implement. The Trump administration’s rollback of environmental regulations in emissions and other areas would be prime targets. In the financial space, a key target would be a proposal (likely to be finalized by the Department of Labor in the coming months) that would subject environmental, social and governance investments to greater scrutiny. There are few areas where a Biden win would represent a more dramatic policy shift than climate issues.
US, China and TikTok.
There was speculation this week that President Trump might ease his demand that a US entity purchase the entire US operations of TikTok in order for it to avoid severe restrictions in the American market. President Trump issued a deadline of September 20 for this purchase and reaffirmed this week that he would stand by this date. The reality is that the September 20 deadline will be impossible to meet given a new requirement by Chinese regulators that they must review and approve any such deal. The speculation around a possible relaxation of the terms of a purchase was triggered by recent outreach from TikTok’s parent company to the Trump administration to consider an exemption of parts of the US operations from a sale. However, in this competitive election year where both sides will try to portray themselves as tough on China, President Trump is not currently in a position to relax his demands. We believe the President will show flexibility before September 20 only if a US company is in an advanced stage of purchasing the relevant TikTok operations and makes a direct appeal to the President to delay the deadline. US-China relations are seemingly marked by some form of drama each week, and TikTok’s saga will take center stage in this regard as we approach September 20.
The Final Word
The Election Has Begun.
While early voting officially kicks off a week from today in Minnesota, some states have already begun mailing out absentee ballots and even receiving many back. North Carolina has already received thousands of completed mail-in ballots. All of this serves to emphasize that the election begins earlier and earlier each year with the expansion of mail-in balloting and early in-person voting in most states. This presents challenges for candidates up and down the ticket as they have less time to define themselves and persuade voters to back them. Last-minute campaign revelations, and “October Surprises,” also are less relevant to these voters as they cast their vote before knowing about such potential developments. In the 2016 presidential election, 40% of votes were cast either early in person or via mail-in ballots, and that number is expected to be much higher this year. As an increasing portion of votes are cast early, we should view election day not as the day to vote, but instead as the final day to vote.