Washington Weekly: X-Date Clarity

The Senate confirmed various Biden administration nominees. The House passed a border security and immigration bill (see below).

The Senate will continue to confirm Biden administration nominees. The House will vote on various law enforcement bills.

Debt Ceiling Extension Slog.

President Biden met with House and Senate leaders from both parties earlier this week, but little progress was made to reach a deal on extending the debt ceiling. Both sides reiterated their well-known positions on what is needed to extend the debt ceiling. Since neither side is going to get most of what they want, a third way will have to be found. With each side well aware of this reality, quiet negotiations among lawmakers have now begun. Various members from the two parties have floated possible solutions to break the impasse to party leaders, but none have gained traction yet. President Biden laid down a few “red lines” in terms of areas of federal spending that he would not support cutting as part of any deal, which is a good sign that he is preparing for negotiations. President Biden and top lawmakers are scheduled to meet again today. The quiet negotiations are what will ultimately lead to a final deal, though they will not get to a more serious stage until we get closer to the X-date next month.

X-Date Clarity.

Since Treasury Secretary Janet Yellen announced two weeks ago that the X-date could be as early as June 1, that date has effectively served as the date by which Congress must act to avoid default. Most lawmakers, however, believe the Secretary has additional flexibility and soon will announce a more precise X-date. Outside budget expert groups have recently identified likely X-dates from early June to mid-August. If a new X-date is announced, it likely will not give Congress significantly more time to complete its work. If a change is made, later June or early July seems plausible to us at this time.

Temporary Solution?

Some lawmakers and the media have suggested that more time is needed to craft a bipartisan agreement and that the debt ceiling should be extended for a few weeks or months to allow more time to negotiate. That scenario could materialize eventually but it won’t in the next few weeks. A short-term punt would more likely be done at the last minute if it was clear that a bipartisan compromise wasn’t ready by the X-date.

14th Amendment Relevance?

President Biden has indicated that he is considering invoking the 14th Amendment to the Constitution to bypass the requirement that Congress raise the debt ceiling. The amendment broadly addresses issues relating to the rights of US citizens but also contains a provision (Section 4) that reads, “the validity of the public debt of the United States … shall not be questioned.” Whether this provision negates the need for Congress to extend the debt ceiling is unclear, and many constitutional scholars are doubtful of that. Secretary Yellen recently indicated that the use of the 14th Amendment as a substitute to congressional passage of legislation would amount to a default. She follows a long list of previous Treasury secretaries from both parties who have concluded the same. We don’t view the current effort to cite the 14th Amendment as a way to bypass Congress this year, but legal clarity on the issue could help in knowing whether it could be used in future standoffs.

Southwest Border Crush.

This week’s end of Title 42, which had placed limitations on migrants seeking asylum in the US since 2020 (as a response to Covid), is being met with a new surge of undocumented migrants along the southwest border. The deluge underscores the challenges faced by cash-strapped local communities and by the federal government in trying to manage a broader immigration system. The Biden administration has been calling on Congress to act on immigration reform, and the House passed a bill yesterday that strengthens border enforcement, reforms the asylum process and continues funding for the border wall, among other provisions. The bill is a non-starter in the Democratic-controlled Senate and with President Biden, who has threatened to veto the bill if it reaches his desk. Like so many other issues, a bipartisan compromise on immigration reforms isn’t currently plausible given the divisions in Washington, and the administration’s actions to address enforcement at the border haven’t been inspiring to many people. The asylum system and checks on illegal immigration have seemingly collapsed, at least for now, and Congress can’t act to improve the situation. Unfortunately, we don’t see this situation improving any time soon.

Airline Passengers Bill of Rights.

Earlier this week, the Department of Transportation announced its intention to write new regulations to ensure passengers are compensated for flight delays and cancellations caused by the airlines. Details surrounding the new rules have not yet been written, but the administration is looking closely at policies in place now in Canada and the European Union for guidance. Compensating inconvenienced passengers is not a new concept, but it clearly is gaining momentum in Washington. Congress has also crafted bipartisan legislation that would achieve the same goals as the administration’s emerging plan, and it could be enacted later this year. Whether it be through pressuring the airlines to improve their policies, passing legislation or enacting regulation, the trend of stronger consumer protections for airlines passengers will continue for the foreseeable future.

Defense Bill Stalls.

The House Armed Services Committee announced this week that it was postponing its mark-up of the annual National Defense Authorization Act (NDAA) because of the ongoing stalemate over the debt ceiling extension. The NDAA last year authorized nearly $850 billion in defense spending for this year. The annual review and approval of the NDAA are considered sacred in Congress. An NDAA bill has passed for 62 years straight despite the broad divisions in Congress that have impeded other types of legislation. Given that the debt ceiling debate likely will impact the levels of federal spending for 2024, lawmakers want to wait to see what the impact on defense spending will be before crafting a new NDAA. Delays and inconsistent levels of funding impact defense spending significantly since contractors need assurances that construction on defense systems can begin and finish on an ongoing basis, both for the US military and a handful of allies. The NDAA will eventually get back on track and likely be approved in the summer, but new delays and uncertainties always makes the defense industry nervous.

Digital Assets.

House Financial Services and Agriculture subcommittees this week teamed up for a joint hearing on the regulation of digital assets that showcased divisions between Republicans and Democrats on how and by whom (SEC or CFTC) digital assets should be regulated. House Republicans also have a draft bill to regulate stablecoins that is more scaled-down than a bipartisan version from last year. Democrats object to key changes (including allowing for a more primary role by state regulators in supervising stablecoin issuers and explicitly clarifying that stablecoins are not securities) and have indicated the need to hit the reset button on legislation given the collapse of FTX. While the new bill could be a starting point for negotiations, the two sides remain far apart. If discussions break down, Republicans still may try to advance some digital asset bill in the House, but that wouldn’t go anywhere in the Senate.

Rail Safety Bill.

A Senate committee this week approved a bipartisan rail safety bill three months after a major train derailment in East Palestine, OH. The bill would require two-person operating crews on trains, a demand made long ago by railway unions. To provide a more effective early warning system for overheated tracks, the bill would require the deployment of enhanced sensors to monitor heat on the tracks. The bill is in good shape to be approved in the full Senate later this year.

Congressional Convictions.

The Justice Department this week unsealed a 13-count indictment against the House’s most infamous freshman, George Santos (R-NY). Congressman Santos has said he is not guilty of these crimes and will continue to serve in office while his case is processed. While Santos can vote on bills before the full House, he stepped down from his committees months again and House Speaker Kevin McCarthy (R-CA) confirmed that he will not be allowed back on them while under indictment. This arrangement is consistent with how House Speaker Nancy Pelosi (D-CA) treated indicted Congressman Jeff Fortenberry (R-NE) last year. Fortenberry was subsequently convicted of campaign offenses and resigned from office. In the 22 times that a member of Congress has been convicted of a crime since 2000, only one -- Congressman Jim Traficant (D-OH) -- refused to step down following a conviction (for public corruption in his case). The House subsequently voted to expel him. Should Santos be convicted and refuse to resign, the House would likely vote to expel him, but until that time he’ll continue to make headlines while serving in Congress.