Washington Weekly

U.S. Office of Public Policy, 12 January 2018 

This Week: The House passed legislation to extend the federal government's warrantless surveillance program (see below). The Senate approved various nominations.

Next Week: Both the House and Senate will try to pass a new government funding bill that will avert a government shutdown (see below).

Financial Services Issues

BSA/AML Reform. The Senate Banking Committee held a hearing on the effectiveness of the existing Bank Secrecy Act (BSA) regulatory regime for combatting money laundering and terror financing. There has been growing bipartisan interest on both sides of Capitol Hill in reforming the current regulatory system to make it both more effective and less burdensome for banks. An ongoing legislative effort in the House would streamline existing requirements and promote greater cooperation between banks and law enforcement agencies. It also would aim to fill a gap in the current regime by setting new requirements for certain business entities to provide details to federal authorities on their beneficial ownership. The Senate has yet to develop its companion to the House bill but will probe these issues further in another hearing next week. While it’s unlikely these legislative changes will become law this year, continued Congressional attention to these issues will put pressure on regulators to implement reforms consistent with the legislation in play.

Other Issues in Play

January 19 Deadline – Next Friday. While there are many issues on the to-do list in Washington, a few have a hard deadline of January 19 that must somehow be accommodated. These issues, listed below, have been the focus on Capitol Hill this week as lawmakers try to beat the Friday deadline.

  • Keeping the Government Open. This certainly has become a tiring exercise – provide government funding in ways that placate both parties or risk a shutdown of the government. Nonetheless, a deadline next week looms as Democrats and Republicans continue to work to try to resolve their funding priority differences to keep the government open. They are not likely to have a resolution by next Friday, so another short-term extension into mid-February is likely. Ultimately, the two sides will reach agreement on a new funding bill that will increase spending in many areas by removing existing spending controls under the sequester. Republicans will get more defense spending, while Democrats will get more money for domestic programs. The loser will be the budget deficit and federal debt. This won't be a very satisfying win for anyone, but it will keep the trains running and government workers at their desks. There is a crying need for a long-term government funding plan that dispenses with the annual (and increasingly more frequent) dramas over government funding and their attendant shutdown threats.
  • Spy Program Extension. An agreement on the federal government's warrantless surveillance program, due to expire next week, has also been elusive. While the House passed a bill this week to extend the program by six years, the measure doesn't seem at this time to have the necessary support in the Senate to advance further. That likely will make a short-term extension necessary to keep the program in operation. The program allows federal investigators to better access and share (with each other) information collected by the U.S. from foreign sources, including suspected terrorists, and connect it with possible communications conducted with U.S. citizens. The extension of the program, highly valued by the intelligence community, has incurred the wrath of privacy advocates, who believe the program is overly intrusive. Any final bill will need to balance these two sentiments. The House-passed bill is a good start in this regard as a new deadline for final action will soon be set.
  • Federal Flood Insurance Program. The National Flood Insurance Program (NFIP), a program providing federally-backed insurance protection to flood-prone areas (over half of the NFIP’s more than 5 million policies are in Florida, Louisiana and Texas), is also set to expire next week. The NFIP has buckled under the strain of a series of devastating hurricanes, and the more recent impact of hurricanes Harvey and Irma prompted Congress last year to cancel $16 billion of the NFIP’s debt so that it would avoid hitting its $30 billion statutory cap. Congress would like to pass a long-term reauthorization of the NFIP that would include reforms geared toward reducing costs and incentivizing private insurers to enter this market. However, a broad enough consensus, particularly in the Senate, has not emerged, so Congress has extended the NFIP as part of its series of short-term extensions for government funding. There may be an eventual effort to decouple the NFIP from the spending bill as a means of muscling through reforms of the program, but the NFIP most likely will continue to be extended in tandem with government funding.
  • DACA and Immigration Reforms. President Trump and congressional leaders are trying to work out an agreement that would address border security, targeted changes to legal immigration policies and a long-term solution to provide legal status for “dreamers” (undocumented immigrants who entered the U.S. as children). An initial deal among a group of bipartisan Senators on these issues began to emerge late this week, though the details will be controversial. There is a need to pass a permanent solution on DACA before March 5, the date at which these protections could otherwise expire. Republicans and the Trump administration would like to pair a DACA fix with other measures, including a border wall and limits on chain migration and the diversity visa lottery. Democrats, meanwhile, want a “clean” bill focused on DACA and have made the resolution of this issue a precondition for supporting a longer-term funding bill. So, these issues do not necessarily have a January 19 deadline, but parts of an agreement could be added to the government funding bill, which does have next week's deadline. The path will remain very bumpy, as this week's developments underscored, but we expect both sides to strike a deal combining a DACA fix with some increased border security funding and possibly other modest immigration policy reforms.

Tax Extenders. Dozens of small and esoteric tax provisions expired at the end of 2016. Only a few of these were addressed in the comprehensive tax bill passed at the end of last year, and the rest will have to be extended through the passage of new legislation. These expired provisions include energy tax credits (such as a credit for residential energy property), a credit for railroad track maintenance, and a quicker depreciation schedule for race horses, among many others. Lawmakers will try to extend these expiring provisions soon in order to ensure that these tax benefits are in effect for returns that will be filed this spring for the 2017 tax year. To be enacted, this measure will need to be bipartisan. Work has begun behind the scenes, and a tax extenders bill likely will be passed as part of a broader legislative package over the next couple of months. Contact Shane Lieberman if you would like to see the list of these expiring tax provisions.

Infrastructure. As the Trump administration gets ready to release its infrastructure plan, a group of bipartisan lawmakers in the House issued a report calling for an increase to the existing gas tax to help fund infrastructure projects in the years to come. The Trump plan is expected to advocate for $200 billion in federal funding for projects with another $800 billion coming from state and local governments and private investors. Legislation to raise the gas tax is not likely to prevail this year, and efforts to try to find other ways to pay for the bill will continue. Separately, the U.S. Chamber of Commerce will hold a big rally next Thursday touting the need to pass an infrastructure bill, and more details of the administration's plan may be released in conjunction with this rally

Return to Earmarks? We were surprised to hear President Trump tell a bipartisan group of lawmakers that it may be time to bring back congressional earmarks. In particular, President Trump opined that the return of earmarks may encourage greater bipartisanship and more deals. Likely upcoming meetings in the House Rules Committee to discuss a proposed new earmark system will only add to the buzz. While there are plenty of folks on Capitol Hill from both parties who would like to bring back earmarks as a means to more directly provide assistance to their states and districts, most congressional Republicans view them as frivolous and potentially corruptive. Whatever the arguments for earmarks, there is still an overriding perception that they would expand the swamp, not drain it, and we don’t expect them to make a comeback in 2018.