Washington Weekly: Defense Authorization Bill

The Senate confirmed various Biden administration judicial nominees and passed a House-approved bill to ban private ownership of big cats (tigers, lions, leopards, jaguars and cougars). The House passed the defense authorization bill for fiscal year 2023 (see below). It also passed a Senate-passed bill to provide federal protection for same-sex marriage and legislation to help non-citizen veterans and service members qualify for green cards and deportation relief. 

The Senate plans to vote on the House-passed defense authorization bill and will continue to vote on various Biden administration nominees. The House may vote on a bill to phase out per-country limits on employment-based immigrant visas. Both the Senate and House will continue negotiations on legislation to extend government funding for fiscal year 2023 beyond December 16 (see below).

Defense Authorization Bill.

As everyone knows, Congress doesn’t accomplish enough on a bipartisan basis, but it has successfully passed a defense authorization bill every year for the last 61 years (since the administration of President John F. Kennedy). Based on the events of this week, Congress is poised to make it 62. The House passed the bill yesterday, and the Senate is expected to follow suit next week. The bill will authorize $847 billion of spending for a wide range of defense programs and policies in 2023. With the wide scope of spending and policy proposals, some controversy is inevitable. A primary flash point this year was whether to maintain the Defense Department’s policy of requiring its employees (including active service members) to be vaccinated for Covid. Since the policy was put in effect last year, about 8,000 service members declined the vaccination and left their posts. While President Biden and many key Democrats would like to retain the policy, a bipartisan group of lawmakers was able to include a provision to repeal the mandate. Going forward, a big question will be whether those 8,000 employees who left the Pentagon can or should now return to work. Congress doesn’t often overturn Defense Department policies in the annual reauthorization bill, but this year will be different.

Government Funding Bill.

Congress risks a government shutdown if it doesn’t pass a bill to fund government operations before the current deadline of December 16 (next Friday). A big question is whether Congress can come to agreement on a big spending package for the remainder of the fiscal year (to September 30, 2023) or whether another short-term extension is needed. If more time is needed, a key question is whether the extension should be just for a few days or extend into next year? While most Senators and all House Democrats would like to wrap up the bill this year, plenty of House Republicans would like to negotiate a final bill next year when they will control the House, albeit narrowly. Some progress was made this week with Senate leaders exchanging offers on an amount of total spending for the bill. Without agreement on that, a final deal will remain elusive. This situation remains very fluid. With time running out, there’s an increasing likelihood that Congress will need to pass another short-term extension to avoid a government shutdown.

Warnock Effect.

With Senator Raphael Warnock’s (D-GA) re-election win in the Georgia run-off election this week, Senate Democrats have increased the size of their majority to 51-49 (this shouldn’t change even with Senator Kyrsten Sinema’s (AZ) announcement this morning that she will switch from being a Democrat to being an Independent). While still a slight margin, it is enough to give them a bit more power than they have had over the past two years. Having 51 votes instead of 50 will give Democrats more of an advantage in committee deliberations and will enable them to more easily pass Biden administration nominees. Notably, the star power that Senators Joe Manchin (D-WV) and Sinema have amassed over the last two years due to their leverage in a 50-50 Senate will dim slightly. With the check of a Republican majority in the House next year, there also will be less speculation and drama regarding what legislation the Senate is able to pass. Finally, the Warnock win will have a distinct impact on Vice President Kamala Harris. As President of the Senate, she has had to cast a tie-breaking vote nearly 30 times in the Senate over the past two years. With tie-breaking votes likely becoming less necessary, she may have additional bandwidth to focus on other priorities and responsibilities, including the challenges on the southwest border.

Whither Safe Banking?

As we mentioned last week, there was serious consideration about including the Secure and Fair Enforcement Banking Act (the “SAFE Banking Act”) in the final defense authorization bill (mentioned above). However, as has happened on prior occasions, SAFE Banking, which would allow financial institutions to provide banking and other services to covered cannabis businesses in states where it is legal, was left on the cutting room floor. The bill was sunk this time by objections raised early this week by Senate Minority Leader Mitch McConnell (R-KY). While there will be efforts to try to include the bill in the year-end spending bill, this is now a decided long shot. Supporters pushed on including it in the defense bill because it was the measure’s best chance at becoming law. Though the bill has bipartisan support, it faces dim prospects in a divided Congress as we look forward.

ESG Scrutiny.

Republicans on the Senate Banking Committee this week issued a report that expresses concerns about what they see as the efforts of some of the largest fund managers in advancing environmental, social and governance (ESG) goals at companies that their funds own. One objective of the report is to provide a rationale for a Republican bill called the Index Act, which would require fund advisers to follow the input of fund investors when voting in proxies for companies with stocks in the fund’s portfolio. The report also argues that these asset managers effectively have control over many companies in which their funds have investments and that this would require them to make additional disclosures and potentially even become a bank holding company. At the same time, progressives in recent years have raised concerns about the impact on competition in certain industries from having so-called common ownership of stocks by a few large fund complexes. For their part, the fund industry argues that they don’t own the assets (millions of investors do) and that investors rely upon fund advisers to not only select investments, but also to conduct ancillary activities like proxy voting. Whatever its merits, the scrutiny has taken a toll, as one of the asset managers this week exited from a major climate change group. While neither pro nor anti-ESG bills will advance very far in a divided Congress, this issue will be a major focus of oversight in the Republican House.

IRS Funding.

Republicans continue to take aim at the $80 billion in funding for the IRS that was included in the Inflation Reduction Act enacted earlier this year. We expect House Republicans to pass a bill early next year to repeal this IRS funding. Amidst infighting among House Republicans on the direction of their party’s strategy next year, this is one area where all of their members agree. This bill will pass the House, but the Democrat-controlled Senate will not advance it. Nevertheless, Republicans will continue to pursue this issue by trying to use cuts to the IRS as a potential offset for new spending needs (such as additional funds for Ukraine or for natural disaster relief) that come up throughout the year. With this piecemeal approach, Republicans will try to connect with voters who may be frustrated with the IRS and with new funding for expanded audits.

Student Loans.

Amidst ongoing litigation on its action to forgive student loan debt for certain borrowers, President Biden last month extended the moratorium on student loan payments until June 30, 2023. More recently, the Supreme Court officially announced that it will hear arguments in February on the debt forgiveness program (the Biden administration petitioned the court after a lower court struck the policy down). While the hearing is in February, rulings are traditionally handed down the following June. Our gut feeling is that there is a good chance the Supreme Court will rule that the Biden Administration did not have the legal authority to grant such relief. Such a decision would quash student loan forgiveness, at least for the time being. Democrats in Congress will respond with bills to provide forgiveness for student loans, but those bills would not pass the Republican controlled House. Particularly if the court strikes down the Biden administration’s plan, the issue could be an important one in the 2024 elections. President Biden and Democrats have already used the high court as a bogeyman on key social issues and could use the court’s decision on student loan forgiveness to try to galvanize young voters.

A Multi-Ballot Speaker?

Congressman Andy Biggs’ (R-AZ) announcement that he will run for Speaker of the House on January 3 only further complicates Congressman Kevin McCarthy (R-CA)’s already challenging path to become Speaker. While Biggs does not have a realistic chance of winning the Speakership, his entrance into the race provides Republicans with an actual alternative to McCarthy. Assuming all Republicans vote, McCarthy is only able to lose five votes in the Speaker race (he would have a little more breathing room if some Republicans simply vote present instead of casting their ballot for an alternative). If no one reaches a majority of the votes cast for Speaker, voting will continue on subsequent ballots until someone receives a majority. A Speaker has not required multiple ballots to be elected since 1923 when Frederick Gillett (R-MA) needed nine ballots to become Speaker. Of the 127 Speaker elections, only 14 have ever required multiple ballots to win, with Nathaniel Banks (R-MA) setting the record by requiring 133 ballots to win the Speakership in 1855. McCarthy will certainly try to do anything possible between now and January 3^rd to avoid having multiple ballots, but, with such a narrow majority, it will take every bit of political wrangling that he can muster.