“Brexit” Dominates, as the Financial Markets Roil – Secretary Kerry Heads to Brussels and London; President Obama Heads to Canada for the North American Leaders’ Summit; While the House is in Recess, Senate Committees Will Focus on the State-Foreign Operations Appropriations Measure and the Full Chamber May Consider the Zika Compromise Measure

President Barack Obama acknowledged from San Francisco early Friday morning that the British had exercised their sovereign rights and chosen to exit the European Union.  Washington awoke to the news and the corresponding negative reaction of the international financial markets soon after.  Secretary of State John Kerry changed his travel schedule, adding a stop in Brussels and London to a trip that had him in Italy over the weekend.  Meanwhile, President Obama travels to Canada this week to attend the annual North American Leaders’ Summit.

Democratic Members of the House staged a 24-hour sit-in on the floor of the chamber last week, protesting what they believed was the Republican leaders’ unwillingness to address gun control through legislation.  On Thursday, Speaker Paul Ryan (R-Wisconsin) abruptly adjourned the House until after the July Fourth holiday.

Senate Majority Leader Mitch McConnell (R-Kentucky) cut off an effort to keep suspected terrorists from buying guns last Thursday after Republicans and Democrats failed to reach an agreement on the issue, effectively ending debate of gun control in that chamber ahead of the November elections.  The Senate will be in session this week.

British Vote to Exit the EU

Washington awoke to news Friday morning that the British had decided to exit the EU, a development that promptly caused international markets to slump.  Many expect market uncertainty will eventually impact the anemic economic growth in the United States.  After traveling to London in April and speaking in favor of Britain remaining in the EU, President Obama released a statement on Friday saying:

“The people of the United Kingdom have spoken, and we respect their decision.  The special relationship between the United States and the United Kingdom is enduring, and the United Kingdom’s membership in NATO remains a vital cornerstone of U.S. foreign, security, and economic policy.  So too is our relationship with the European Union, which has done so much to promote stability, stimulate economic growth, and foster the spread of democratic values and ideals across the continent and beyond.  The United Kingdom and the European Union will remain indis”pensable partners of the United States even as they begin negotiating their ongoing relationship to ensure continued stability, security, and prosperity for Europe, Great Britain and Northern Ireland, and the world.”

Senate Foreign Relations Committee Chairman Bob Corker (R-Tennessee) also issued a statement on Friday recognizing the British decision, while emphasizing the “special relationship” and importance of trade between the two countries:

“[The] referendum will not change our special relationship with the United Kingdom.  That close partnership will endure, and we will continue to work together to strengthen a robust trade relationship and to address our common security interests.”

Secretary of State Kerry said on Friday of the U.K. Referendum:

“I want to emphasize that although the U.K. will be leaving the European Union, the British are in no way departing from the principles and values that undergird the Transatlantic Partnership or from the important role the U.K. plays in promoting peace and stability in the world. The special relationship that has long existed between the United States and the U.K. endures. Our two countries remain strong and vigilant NATO Allies, permanent members of the UN Security Council, commercial partners, and close friends.”

He added:

“I also want to reaffirm the U.S. commitment to the European Union and the common agenda we share with Europe on such issues as Ukraine, nuclear nonproliferation, climate change, trade, and human rights.”

Secretary Kerry will be in Brussels and London today, meeting this morning with EU High Representative for Foreign Affairs and Security Policy Federica Mogherini, and later today with U.K. Foreign Secretary Philip Hammond.  In speaking with reporters in Italy over the weekend, Secretary Kerry said,

“The most important thing is that all of us as leaders work together to provide as much continuity, as much stability, as much certainty as possible in order for the marketplace to understand that there are ways to minimize disruption, there are ways to smartly move ahead in order to protect the values and interests that we share in common.”

Squire Patton Boggs has released a client alert noting the vote does not immediately change the legal relationship between the United Kingdom and the EU.  The firm summarizes some of the more immediate considerations that may arise in your business, available here.

North American Leaders’ Summit This Week

President Barack Obama, Mexican President Enrique Pena Nieto, and Canadian Prime Minister Justin Trudeau will meet on Tuesday in Ottawa for the annual North American Leaders’ Summit.  President Obama will also address a joint session of the Canadian Parliament.

Upcoming Presidential Trip – NATO, Poland and Spain

From 7-11 July, President Obama will travel to Poland and Spain.  He will participate in the NATO Summit in Warsaw from 7-9 July.  The summit is expected to underscore the Alliance’s solidarity and to advance efforts to bolster security along NATO’s eastern and southern fronts.  While in Warsaw, President Obama will hold a bilateral meeting with Polish President Anrezej Duda.  He will also meet with the Presidents of the European Council and the European Commission to discuss U.S.-EU cooperation across a range of shared priorities, including countering terrorism, fostering economic growth and prosperity, and addressing the global refugee crisis.  The U.K. referendum will also likely be a topic of discussion, as well as ongoing free trade agreement negotiations between the United States and EU.

From 9-11 July, President Obama will visit Spain, where he will meet with King Felipe VI and Acting President Mariano Rajoy.  This visit to another NATO member country will highlight security cooperation between the United States and Spain as well.

SelectUSA Investment Summit & GES

President Obama started last week out at the SelectUSA Investment Summit in Washington, which focused on attracting investments to the United States.  In addressing the forum, President Obama spotlighted, “Over the last four years, no other country has been named by CEOs around the world more frequently as the best place to invest with confidence.”

President Obama ended the week in San Francisco, attending the annual Global Entrepreneurship Summit (GES), which focuses on innovation.  The President signed an Executive Order on Friday to institutionalize key entrepreneurship programs of his Administration highlighting entrepreneurship is a hallmark of American leadership in the world.  The White House released a fact sheet on the GES, available here.

North Korea – Censured Again

After a failed attempt early last week, North Korea claimed on Thursday to have conducted a successful test-firing of a ballistic missile, swiftly drawing the censure of the United Nations Security Council.  In a press statement, the Security Council urged all countries “to redouble their efforts” to fully implement sanctions against North Korea, particularly those imposed in March, which were the toughest in two decades.  U.S. Ambassador Samantha Power sharply criticized North Korea’s “inherently destabilizing behavior” on Wednesday.

Venezuela Dialogue – U.S. Participates

Secretary General of the Organization of American States (OAS) Luis Almagro cited the current Government in Caracas as responsible for the near-collapse of Venezuela’s economy and called for the recall of President Nicolás Maduro.  Under Secretary of State for Political Affairs Tom Shannon joined the mediation efforts underway in Caracas last week, saying that a follow-on meeting date has yet to be determined.

Zika Funding Compromise Reached – Veto Threat Issued

Last week, House and Senate Republicans reached a compromise on funding a response to the Zika virus without Democrats’ input.  Before adjourning, House Republicans advanced (239-171) a spending measure that includes a $1.1 billion plan for the Zika virus.  The measure would provide $230 million for the National Institutes of Health to develop a vaccine and $476 million for the Centers for Disease Control and Prevention for mosquito control efforts.

Democratic Senator Bill Nelson (Florida) objected to the compromise, citing the $750 million in budget cuts to other health care programs.  The bill would cut $543 million in unused funds for implementing the Affordable Care Act, $107 million from funds used to fight Ebola, and $100 million in administrative funds from the Health and Human Services Department.  The $1.1 billion is also short of President Obama’s request for $1.9 billion to combat the virus.  The Senate is expected to take up the bill before it leaves Washington this week for its July 4 recess, but its prospects are unclear at best.

TPP – Implementing Bill Reportedly Being Drafted

Despite the public backlash to trade in an election year, U.S. Trade Representative Michael Froman said last Monday that the Obama Administration has begun drafting an implementing bill for a potential lame-duck vote on the Trans-Pacific Partnership (TPP) under Trade Promotion Authority (TPA). Ambassador Froman acknowledged that Majority Leader McConnell “has made clear publicly that he doesn’t want to see a vote [on TPP] before the [November] election,” which leaves the lame-duck session as the best window of opportunity for trying to advance a TPP implementing bill.

Privacy Shield – Agreement Reached

The European Commission and U.S. negotiators wrapped up their discussions over the transatlantic data-flow “privacy shield” agreement late on Thursday.  A Commission official reported the deal contains “additional clarifications regarding the Ombudsperson mechanism, onward transfers and data retention, as well as on an additional U.S. document on the bulk collection of data.”  The Article 31 Committee will next vote on the text of the agreement.

NDAA – Pre-Conferencing Stage

Senate Armed Services Committee Chairman John McCain (R-Arizona) reported last week that the leaders of the House and Senate Armed Services Committees met on Thursday to begin the process of reconciling the differences in their versions of the National Defense Authorization Act (NDAA).  A formal House-Senate conference does not begin until the two chambers appoint their conferees, which has yet to occur.

Congressional Hearings This Week

  • On Tuesday, 28 June, the Senate Armed Services Committee is scheduled to hold a hearing titled, “Improving Strategic Integration at the Department of Defense.”
  • On Tuesday, 28 June, the Senate Foreign Relations Committee is scheduled to hold a hearing titled, “Global Efforts to Defeat ISIS.”
  • On Tuesday, 28 June, the Senate Appropriations Subcommittee on State-Foreign Operations (SFOPs) is scheduled to hold a mark-up of the Fiscal Year (FY) 2017 SFOPs measure.
  • On Wednesday, 29 June, the Senate Commerce, Science, and Transportation Committee is scheduled to hold an executive session, where they will consider S. 3084, The American Innovation and Competitiveness Act, among other matters.
  • On Thursday, 30 June, the Senate Foreign Relations Committee is scheduled to hold a hearing titled, “Corruption: Violent Extremism, Kleptocracy, and the Dangers of Failing Governance.”
  • On Thursday, 30 June, the Senate Armed Services Committee is scheduled to hold a closed hearing titled, “National Security Cyber and Encryption Challenges.”
  • On Thursday, 30 June, the Senate Appropriations Committee is scheduled to markup the FY 2017 SFOPs measure.

Looking Ahead

Washington is expected to focus on the following upcoming events:

  • 29 June: North American Leaders Summit in Ottawa, Canada.
  • 7-11 July: President Obama travels to Poland and Spain
  • 8-9 July: NATO Summit in Warsaw, Poland
  • 18-21 July: Republican National Convention in Cleveland, Ohio
  • 25-28 July: Democratic National Convention in Philadelphia, Pennsylvania
  • 4-5 September: G-20 Leaders’ Summit in Hangzhou, China
  • 13 September: 71st Session of the U.N. General Assembly (UNGA) Begins
  • 20 September: UNGA General Debate Commences
  • 19-20 November: Asia-Pacific Economic Cooperation (APEC) Leaders’ Summit in Peru

Senate, House Continue on with Appropriations Work

Senate Legislative Activity

The Senate will convene on Monday, June 20, at 3:00pm. Following any Leader remarks, the Senate will resume consideration of H.R.2578, Commerce, Justice, Science, and Related Agencies Appropriations Act. The pending cloture motions on amendments will ripen at 5:30pm, at which time the Senate will have up to four roll call votes:

If cloture is invoked on any of these amendments, there will be up to 30 hours of debate on each amendment on which cloture is invoke prior to a vote on that amendment, after which the Senate will move on to a cloture vote on the next amendment.

House Legislative Activity

On Monday, June 20, the House will meet at 2:00pm in pro forma session, with no votes expected.

On Tuesday, June 21, the House will meet at 12:00pm for morning hour and at 2:00pm for legislative business, with votes postponed until 6:30pm. The following legislation will be considered under suspension of the rules:

  1. H.R. 5525 – End Taxpayer Funded Cell Phones Act of 2016;
  2. H.R. 4369 – To authorize the use of passenger facility charges at an airport previously associated with the airport at which the charges are collected;
  3. H.R. 5388 – Support for Rapid Innovation Act of 2016;
  4. H.R. 5389 – Leveraging Emerging Technologies Act of 2016;
  5. S. 2133 – Fraud Reduction and Data Analytics Act of 2015;
  6. H.R. 4902 – To amend title 5, United States Code, to expand law enforcement availability pay to employees of U.S. Customs and Border Protection’s Air and Marine Operations;
  7. H.R. 2395 – Inspector General Empowerment Act of 2016, as amended;
  8. H.R. 4639 – Thoroughly Investigating Retaliation Against Whistleblowers Act, as amended;
  9. H.R. 4372 – To designate the facility of the United States Postal Service located at 15 Rochester Street, Bergen, New York, as the Barry G. Miller Post Office;
  10. H.R. 2607 – To designate the facility of the United States Postal Service located at 7802 37th Avenue in Jackson Heights, New York, as the “Jeanne and Jules Manford Post Office Building”;
  11. H.R. 4010 – To designate the facility of the United States Postal Service located at 522 North Central Avenue in Phoenix, Arizona, as the “Ed Pastor Post Office”;
  12. H.R. 4777 – To designate the facility of the United States Postal Service located at 1301 Alabama Avenue in Selma, Alabama as the “Amelia Boynton Robinson Post Office Building”;
  13. H.R. 4925 – To designate the facility of the United States Postal Service located at 229 West Main Cross Street, in Findlay, Ohio, as the “Michael Garver Oxley Memorial Post Office Building”;
  14. H.R. 4960 – To designate the facility of the United States Postal Service located at 525 N Broadway in Aurora, Illinois, as the “Kenneth M. Christy Post Office Building”;
  15. H.R. 5028 – To designate the facility of the United States Postal Service located at 10721 E Jefferson Ave in Detroit, Michigan, as the “Mary Eleanora McCoy Post Office Building”;
  16. H.R. 4590 – Fiscal Year 2016 Department of Veterans Affairs Seismic Safety and Construction Authorization Act, as amended;
  17. H.R. 5317 – To designate the Department of Veterans Affairs health care center in Center Township, Butler County, Pennsylvania, as the “Abie Abraham VA Clinic”;
  18. H.R. 3936 – VET Act, as amended;
  19. H.R. 5170 – Social Impact Partnerships to Pay for Results Act, as amended;
  20. H.R. 5447 – Small Business Health Care Relief Act of 2016;
  21. H.R. 5452 – Native American Health Savings Improvement Act; and
  22. H.R. 5456 – Family First Prevention Services Act of 2016

On Wednesday and Thursday, June 22-23, the House will meet at 10:00am for morning hour and at 12:00pm for legislative business. On Friday, June 24, the House will meet at 9:00am for legislative business. The House will consider:

  1. Consideration of the Veto Message on H.J.Res. 88 – Disapproving the rule submitted by the Department of Labor relating to the definition of the term Fiduciary. (Subject to a Rule);
  2. H.R. 5485 – Financial Services and General Government Appropriations Act, 2017 (Subject to a Rule);
  3. H.R. 1270 – Restoring Access to Medication Act of 2015, Rules Committee Print (Subject to a Rule); and
  4. H.R. 4768 – Separation of Powers Restoration Act of 2016 (Subject to a Rule)

The House may also consider a Conference Report on H.R. 4974 – Military Construction and Veterans Affairs and Related Agencies Appropriations Act / H.R. 5243 – Zika Response Appropriations Act.

Senate to Continue Consideration of CJS Appropriations, Vote on Gun Control Amendments; House to Take Up Controversial Financial Services Appropriations

Legislative Activity

House and Senate Floor Consideration Continues

This week, the Senate will continue consideration of H.R. 2578, the vehicle for the FY 2017 Commerce-Justice-Science (CJS) Appropriations bill. After a 15-hour filibuster from Senator Chris Murphy (D-CT) and other Democrats last week, Majority Leader Mitch McConnell (R-KY) agreed to bring gun control amendments to the floor for a vote, likely today. We expect votes on four amendments – two Democratic proposals and two Republican alternatives – addressing whether individuals on the terrorist watch list should be able to purchase guns and to extend background checks to gun shows and online sales. While talks are underway to reach a compromise, it is not expected that any of these amendments will pass. They were brought up in December, following the attack in San Bernardino, and all failed. Additional amendments regarding “sanctuary cities” and LGBT discrimination could also create problems for passage of the bill, which has already received a veto threat from President Obama due to provisions regarding Guantanamo Bay.

Continuing consideration of appropriations bills under a structured rule to prevent amendment dispute, the House is expected to take up H.R. 5485, the FY 2017 Financial Services and General Government Appropriations bill this week.  The measure includes several contentious policy riders targeting the Consumer Financial Protection Bureau (CFPB) and other agencies, which are almost certain to draw Democratic opposition and a veto threat by the President.

By utilizing a structured rule for appropriations legislation, House leaders will likely prevent any controversial gun-related amendments from reaching the floor.

Congress has three working weeks before adjourning for a seven-week break for the national conventions in July and its annual August recess. With only three appropriations bills having gone through the Senate, and three through the House, a stopgap Continuing Resolution (CR) to fund the government beyond September 30, 2016, becomes more and more certain.

Zika Negotiations

The House and Senate conferees met for the first time on Wednesday to begin talks on emergency funding levels in response to the Zika crisis.  As previously reported, the House bill, H.R. 5243, contains $622 million to combat Zika for the remainder of FY 2016, while the Senate passed $1.1 billion in emergency spending as part of H.R. 2577, which included Military Construction-Veterans Affairs appropriations. Disputes remain over funding levels and whether the funding requires offsets. House and Senate leadership have indicated that they expect to vote on a conference report this week.

This Week’s Hearings:

  • On Wednesday, June 22, the House Appropriations Committee will hold a markup of the Fiscal Year 2017 Homeland Security Bill. (The markup was scheduled to occur last week, but was postponed following the mass shooting in Orlando).

House Tries to Block Overtime Rule; Department of Education Releases Proposed Rule on Student Loan Debt and Dear Colleague on Title IX; GAO Report on Student Loan Servicers

Legislative Update

Representative Virginia Foxx (R-NC) Moves to Block Overtime Rule

Representative Virginia Foxx (R-NC) introduced J. Res 95 under the Congressional Review Act to repeal the controversial overtime rule finalized by the Department of Labor (DOL) in May. Under the Congressional Review Act, Congress may pass a resolution of disapproval to prevent, with the full force of the law, a federal agency from implementing a rule or issuing a substantially similar rule without congressional authorization.

Members of Congress are concerned DOL failed to streamline existing overtime regulations and finalized a rule that will be burdensome to small businesses, threaten upward mobility, and will diminish workplace flexibility. Nonprofit organizations and colleges and universities have said this rule will impede their ability to serve communities.

As a reminder, the overtime rule increases the salary threshold for overtime eligibility from  $23,660 to $47,476 per year and is set to go into effect December 1, 2016.

Representatives John Kline (R-MN) and Virginia Foxx (R-NC) Statement on Proposed Rule on Student Loan Debt Relief

House Education and the Workforce Committee Chairman John Kline (R-MN) and Higher Education and Workforce Training Subcommittee Chairwoman Virginia Foxx (R-NC) issued a June 13 joint statement regarding the Department of Education’s new proposed regulation affecting student borrowers. They feel that despite the having the tools to address fraud against students in a responsible way, the Administration has overstepped in an “extreme and partisan way. “  They are concerned the new regulation will cost taxpayers billions of dollars, access to education will be restricted, and they have called on the Department to withdraw the proposal.

This Week’s Hearings: 

  • On Thursday, June 23, the House Education and the Workforce Committee will hold a hearing titled, “Next Steps in K-12 Education: Examining Recent Efforts to Implement the Every Student Succeeds Act.” Education Secretary John B. King, Jr. will testify before the Committee.

Regulatory Activity

Department of Education Issues Proposed Rule on Student Loan Debt Relief

The Department of Education announced a 530-page proposed regulation that sets new standards for student loan debt relief, bans mandatory arbitration agreements, and gives the Education Department new tools to crack down on financially-troubled colleges.  This rule comes under the “defense of repayment” provision of the Higher Education Act, which was updated last year after an increase of debt relief claims from students of Corinthian Colleges.

The proposal includes new prohibitions on the use of “mandatory arbitration” clauses in the enrollment agreements of colleges that receive federal student aid. The clauses, typically used by for-profit colleges, keep students from taking their school to court. The regulations would also give the Department of Education more power to require colleges to post collateral when officials are concerned about financial stability and institutions in financial trouble would be required to disclose problems to current and prospective students.

These changes are estimated to cost between $2 billion and $42.7 billion over the next decade. The budget estimates vary widely in part because of the challenge in predicting the extent of fraud among institutions of higher education and how many student loan borrowers would be able to file successful claims.

Department of Education Dear Colleague Letter on Gender Equity in Career and Technical Education

 The Department of Education has released guidance in the form of a Dear Colleague letter reminding Career and Technical Education (CTE) providers that all students, regardless of sex or gender, must have equal access to the full range of career and technical education programs being offered. The letter, sent by the department’s Office for Civil Rights and Office of Adult, Career and Technical Education, does not add to existing law, but represents “significant guidance” that clarifies to K-12 and post-secondary institutions and state and local officials how the Department evaluates compliance with existing CTE regulations.

According to the guidance, under the Perkins Act, Title IX, and other federal laws, institutions are required to identify and remedy practices that have discriminatory effects and proactively expand participation in fields where one sex is under-represented. A main concern in the guidance is how under-representation of girls and women in CTE programs can hinder their earning power in careers and decreases workforce diversity. Further, the letter seeks to increase participation for both men and women in “high-growth fields,” like nursing, advanced manufacturing, information technology, computer science, and cybersecurity.

The Office of Career, Technical, and Adult Education is developing an “advancing equity in CTE” toolkit to provide resources and strategies to implement equitable and high-quality CTE programs in secondary and postsecondary institutions.

This guidance comes at a time when Members of Congress and state leaders continue to grow concerned with the number of Dear Colleagues being issued by the Administration, and the impact they may have on institutions of higher education.

Government Accountability Office Report on Department of Education Student Loan Servicers

 The Government Accountability Office (GAO), the investigative arm of Congress, issued a report saying the Department of Education needs to improve its metrics for evaluating student loan servicers to determine whether they are assisting borrowers as they should, and adjust performance metrics and compensation to keep them in line.

The report notes that last year alone, the Department of Education issued nearly $96 billion in Direct Loans, and it recommends the Department set minimum standards for call centers to operate. Additionally, the GAO said the Department should ensure its complaint tracking system includes “comprehensive and comparable” information about the complaints.

In a written response, the Department agreed with many of the findings, but disagrees that the “program compliance is not reflected in the current performance metrics themselves.”  Further, the report “leaves the reader with the inaccurate impression that changes to compensation and allocation structures represent the only way for the department to affect servicer performance.” Currently, the Department has begun the process of having student loan servicing companies submit new bids for contracts, as it seeks to improve the quality of servicers’ work.

James Runcie, chief operating officer at the Federal Student Aid office, said the Department agrees to set minimum call center hours. He also said an effort to roll out a single web portal for all federal loans will lead to a more-comprehensive complaint system, as recommended by GAO.

Flurry of Financial Services Activity as Legislative Days Fly By; SEC, CFTC Move Ahead with Regulatory Priorities

Legislative Activity

House to Vote on Financial Services Appropriations Bill as Hensarling Pushes Plan to Replace Dodd-Frank

This week, the House is expected to consider the FY 2017 Financial Services and General Government Appropriations Act, which passed out of Committee largely along partisan lines and contains various provisions that would peel back certain aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The Senate, however, last week passed a much more bipartisan counterpart bill that contained very few controversial provisions and would leave current financial services policy largely intact.

The divergence between House and Senate Appropriators can also be seen in the two Committees with jurisdiction over financial services issues. In the House, Financial Services Committee Chairman Jeb Hensarling (R-TX) recently unveiled details about the Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs (the CHOICE Act), which is the Republican plan to replace the Dodd-Frank Act. While the House is unlikely to take up his broad package, the body has passed numerous tweaks to the nation’s banking laws this year. The Senate, however, continues to show little interest in moving financial services bills this Congress, thus pushing any significant reforms until at least 2017.

Lawmakers Set to Receive Report on Monetary Policy, Terrorism Financing

This week, Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, will appear before Congress to testify on U.S. monetary policy and the state of the economy. The hearing will serve as an opportunity for Members of Congress to highlight continued concerns over current monetary policy activity at the Federal Reserve. Note that last week, the Federal Reserve announced that it would not raise its benchmark interest rate, suggesting that future increases are now expected to occur at a slower pace than originally anticipated.

Additionally, in the wake of the Orlando terror attack, the House Financial Services Task Force to Investigate Terrorism Financing will meet this week and summarize its two-year survey of current efforts to combat terrorist financing and related forms of illicit finance. As the Task Force concludes its work, lawmakers will now focus on finalizing its report and recommendations regarding what needs to be done to update the nation’s banking laws to better prevent the financing of terrorist activity. Though exactly what those recommendations will be are unclear, much of the focus thus far has been on examining beneficial ownership regulations, “know your customer laws,” and the need for better coordination within and between governments.

Will PROMESA Keep Its Promise for Puerto Rico?

Senate Majority Leader Mitch McConnell (R-KY) has indicated that he plans to bring H.R. 5278, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), up for consideration before the end of the month; the Commonwealth faces a $2 billion bond payment – which it will be unable to make – on July 1. Presently, it is unclear whether the Senate will allow amendments to the bill, which is aimed at resolving Puerto Rico’s fiscal crisis. Still, various Senators, leg in large part by Senator Robert Menendez (D-NJ), have been vocal about the need to include stronger economic and tax incentives and hope to use the amendment process to include such provisions in the final bill. However, given that the House is expected to recess at the end of this week, allowing amendments at this point will almost certainly push final passage beyond the July 1 deadline, potentially having devastating consequences for Puerto Rico and the bond markets generally. For his part, Treasury Secretary Jack Lew is urging the Senate to pass the Puerto Rico bill expeditiously and address any remaining concerns at a later date.

This Week’s Hearings:

  • Tuesday, June 21: The Senate Banking, Housing and Urban Affairs Committee will hold a hearing titled “The Semiannual Monetary Report to Congress.”
  • Tuesday, June 21: The Senate Health, Education, Labor, and Pensions Subcommittee on Primary Health and Retirement Security will hold a hearing titled “Small Business Retirement Pooling: Examining Open Multiple Employer Plans.”
  • Wednesday, June 22: The House Financial Services Committee will hold a hearing titled “Monetary Policy and the State of the Economy.”
  • Thursday, June 23: The House Financial Services Committee Task Force to Investigate Terrorism Financing will hold a hearing titled “The Next Terrorist Financiers: Stopping Them Before They Start.”
  • Thursday, June 23: The Senate Banking, Housing, and Urban Affairs will hold a hearing titled “Bank Capital and Liquidity Regulation Part II: Industry Perspectives.”

Regulatory Activity

House Democrats Push Back Against Payday Lending as Efforts to Delay the Rule Under Way

Last week, Democrats on the House Financial Services Committee released a report focused on how certain short-term, small dollar lenders allegedly “exploit loopholes” in various states’ (Ohio, Texas, Florida, California, and Colorado) regulatory regimes to get around various lending restrictions. The report urges the Consumer Financial Protection Bureau (CFPB) to issue a final short-term, small dollar loan rule that is broad enough to cover any attempts to evade it, including attempts by online and tribal lenders to issue loans in states where payday lending is banned.

Since proposing its rules on payday, vehicle title, and certain high-cost installment loans, the CFPB has been proceeding expeditiously to finalize its proposal. Comments are expected to be due in mid-September, with the Bureau likely to finalize the rulemaking shortly thereafter, despite significant concerns from industry about the potential impact on consumer access to credit. Notably, in passing its FY 2017 Financial Services and General Government Appropriations Bill, the House Appropriations Committee adopted a “stop and study” amendment, which would delay the rulemaking and require an impact study before the Bureau is permitted to finalize the rulemaking; the Senate bill did not include such a provision. The CHOICE Act (mentioned above), would also permit States and tribes to request an unconditional five-year waiver from the rulemaking.

SEC Slow to Move on Fiduciary Rule, Addresses Other Priorities

Last week, Securities and Exchange Commission (SEC) Chair Mary Joe White confirmed before the Senate Banking Committee that the SEC is unlikely to propose a uniform fiduciary standard of conduct for broker-dealers and investment advisors providing personalized investment advice about securities to retail customers until next year. According to Chair White, the SEC intends to observe the consequences and reactions to the Department of Labor’s Fiduciary Rule to gauge if a “conflict develops.” Chair White has also indicated there may be some divergences between the SEC’s proposal and DOL’s rule, though she did recognize the need for a uniform fiduciary rule for broker-dealers and investment advisers. Relatedly, note that this week, the House will take up and consider the President’s veto of a Congressional Resolution seeking to block DOL’s proposal.

In addition to discussing the SEC’s work on its Fiduciary Rule with members of the Senate Banking Committee, Chair White also addressed a myriad of the Commission’s upcoming priorities, including disclosures and corporate political spending, as well as the need for additional resources.

CFTC Re-Opens Comment Period on Reg AT

On June 10, the Commodity Futures Trading Commission (CFTC) held a staff roundtable on elements of Regulation Automated Trading (Reg AT), which is designed to address various issues relating to algorithmic trading on Designated Contract Markets (DCMs). The CFTC proposed Reg AT in December 2015 and provided for a 90-day comment period. During the Roundtable, discussion focused on three main issues: (1) registration requirements for DCMs, including requirements covering pre- and post-trade risk controls; (2) development, testing, and monitoring of systems; and (3) record-keeping, reporting, and personnel training requirements. Industry panelists, including many representatives from high-frequency trading firms and other financial services firms, cautioned against further regulations that may burden such firms with onerous reporting and record-keeping requirements.

To consider these concerns, the CFTC has reopened the comment period through this Friday, June 24.  Notably, this action by the CFTC comes as the SEC last week granted regulatory approval to IEX Group Inc., a new stock exchange that slows the speed of trading.

The CFTC has also recently to expand Regulation 50.4(a) to require more interest rate swaps to be cleared either through a registered derivatives clearing organization (DCO) or an organization that has been exempted from registration under the Commodity Exchange Act. The rule, which was proposed on June 9, is open for comment for 30 days.

FSOC to Meet, Discuss 2016 Annual Report

On Tuesday, June 21, the Financial Stability Oversight Council (FSOC) will meet both in open and executive session. In the open session, the FSOC is expected to discuss its Council’s 2016 Annual Report.  The preliminary agenda for the executive session includes an update on market developments, a discussion of the Board of Governors of the Federal Reserve System’s proposed rulemakings that would apply to certain insurance companies, and a discussion of the annual re-evaluation of the designation of a nonbank financial company.

House Republicans to Release ACA Alternative; CMS Issues Proposed Rule to Improve Quality of Care

Legislative Activity

House Republicans to Release ACA Alternative

House Republicans announced they will release their long-awaited Affordable Care Act (ACA) Alternative this week. The Speaker’s Task Force on Health Care Reform was announced in January and is one of six committee-led task forces charged with developing “a bold, pro-growth agenda.” Members of the Health Care Task Force include  House Majority Whip Steve Scalise (R-LA), Energy and Commerce Committee Chairman Fred Upton (R-MI), Ways and Means Committee Chairman Kevin Brady (R-TX), Education and the Workforce Committee Chairman John Kline (R-MN), and Budget Committee Chairman Tom Price (R-GA). Republicans believe the alternative will demonstrate to voters how they plan to improve certain parts of the current health care system, and replace others that are not working. It is said the plan will include ideas republicans have touted in the past such as high-risk pools, tax benefits for buying insurance coverage, Health Savings Accounts, health plans for small business collectives, and capping the tax benefits employers receive for providing coverage. A version of Speaker Ryan’s Medicare premium support idea and capping reimbursements for Medicaid beneficiaries may also be addressed in the alternative. The Republican Alternative is not expected to include a price tag.

This Week’s Hearings:

  • Monday, June 20: The House Committee on Rules will hold a meeting on H.R. 5485, the Financial Services and General Government Appropriations Act, 2017 and H.R. 1270, the Restoring Access to Medication Act of 2015.
  • Tuesday, June 21: The Senate Committee on the Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights will hold a hearing titled “The CREATES Act: Ending Regulatory Abuse, Protecting Consumers, and Ensuring Drug Price Competition.”
  • Wednesday, June 22: The House Committee on Ways and Means Subcommittee on Social Security will hold a hearing titled “The 2016 Annual Report of the Social Security Board of Trustees.”
  • Thursday, June 23: The House Committee on Veterans Affairs will hold a hearing on various legislation including H.R. 5416, A bill to amend title 38, United States Code, to expand burial benefits for veterans who die while receiving hospital care or medical services under the Veterans Choice Program of the Department of Veterans Affairs, and for other purposes; H.R. 3126, A bill to amend Title 38, United States Code, to clarify emergency hospital care furnished by the Secretary of Veterans Affairs to certain veterans; H.R. 4150, the Department of Veterans Affairs Emergency Medical Staffing Recruitment and Retention Act; H.R. 5407, A bill to amend title 38, United States Code, to direct the Secretary of Labor to prioritize the provision of services to homeless veterans with dependent children in carrying out homeless veterans reintegration programs, and for other purposes; H.R. 5162, the Vet Connect Act; H.R. 5392, the No Veterans Crisis Line Call Should Go Unanswered Act; and H.R. 4764, the Puppies Assisting Wounded Servicemembers (PAWS) Act of 2016.
  • Thursday, June 23: The Senate Committee on Aging will hold a hearing titled “The Right Care at the Right Time: Ensuring Person-Centered Care for Individuals with Serious Illness.”
  • Thursday, June 23: The House Committee on Foreign Affairs Subcommittee on Africa, Global Health, Global Human Rights, and International Organizations, and Subcommittee on Europe, Eurasia, and Emerging Threats will hold a hearing titled “Organ Harvesting: An Examination of a Brutal Practice.”
  • Friday, June 24: The House Committee on Energy and Commerce Subcommittee on Health will hold a hearing titled “Strengthening Our National Trauma System.”

Regulatory Activity

CMS Issues Proposed Rule to Improve Quality of Care

On Monday, June 13, the Center for Medicare and Medicaid Services released a proposed rule to improve the quality of care by updating the requirements hospitals and critical access hospitals (CAHs) must meet to participate in Medicare and Medicaid. The CMS proposal requires hospitals to develop and implement a hospital infection prevention program; establish and enforce a policy prohibiting discrimination on the basis of race, religion, national origin, sex, sexual orientation, age or disability;  and it makes several clarifications and revisions to current requirements including requirements for antibiotic stewardship programs and the use of quality reporting program data by hospital Quality Assessment and Performance Improvement programs. CMS states the “proposals are intended to conform the requirements to current standards of practice to support improvements in quality care, reduce barriers to care, and reduce some issues that may exacerbate workforce shortage concerns.” Comments on the proposed rule are due by Monday, August 15, 2016.

Lawmakers Pass Counterterrorism Measures in Wake of Orlando Shooting; The Department of Homeland Security Issues New Terrorism Advisory; President Obama Travels to Orlando

Legislative Activity

Lawmakers Pass Counterterrorism Measures in Wake of Orlando Shooting

On Thursday, June 16, the House of Representatives overwhelmingly passed H.R. 5471, the Counter Terrorist Radicalization Act, which combines three previously-passed bills to counter terrorist recruitment and extremism, by a vote of 402 to 15.  House leaders repackaged the measures – H.R. 4401, the ALERT Act of 2016; H.R. 4820, the Combating Terrorist Recruitment Act of 2016; and H.R. 4407, the Counterterrorism Advisory Board Act of 2016 – in hopes of that the Senate could act quickly to pass the measures following the Orlando shooting attack on June 12.

House Majority Leader Kevin McCarthy (R-California) and House Homeland Security Committee Chairman Mike McCaul (R-Texas) lauded the chamber’s action in a joint statement, saying “Our city streets have become the frontlines in the war against radical Islamist terror. To honor the memory of the victims in Orlando, we must rededicate ourselves to preventing terrorists from gaining a foothold in our communities. . . . Make no mistake, after this latest attack in our homeland, our resolve is strengthened and we are more determined than ever to take the fight to the enemy, no matter where they emerge.”

This Week’s Hearings:

  • On Tuesday, June 21, the Senate Homeland Security and Governmental Affairs Committee will hold a hearing titled “The Ideology of ISIS.”
  • On Tuesday, June 21, the House Homeland Security Subcommittee on Preparedness, Response, and Communications will hold a hearing titled “Protecting our Passengers: Perspectives on Securing Transportation in New Jersey and New York.”
  • On Tuesday, June 21, the House Oversight and Government Reform Subcommittee on National Security and Subcommittee on Government Operations will hold a joint hearing titled “Radicalization in the U.S. and the Rise of Terrorism.”
  • On Wednesday, June 22, the House Appropriations Committee will mark up its Fiscal Year 2017 Homeland Security Bill.
  • On Wednesday, June 22, the House Homeland Security Subcommittee on Transportation will hold a hearing titled “Part II: Flying Blind: What Are The Security Risks of Resuming U.S. Commercial Air Service to Cuba?”
  • On Wednesday, June 22, the Senate Homeland Security and Governmental Affairs Committee will hold a hearing titled “Renewing Communities and Providing Opportunities Through Innovative Solutions to Poverty.”
  • On Wednesday, June 22, the Senate Judiciary Committee will hold a hearing titled “Oversight of the Drug Enforcement Administration.”
  • On Thursday, June 23, the House Homeland Security Subcommittee on Terrorism and Intelligence will hold a hearing titled “Counterintelligence and Insider Threats: How Prepared Is the Department of Homeland Security?”

Executive Branch Activity

On June 15, the U.S. Department of Homeland Security (DHS) issued a new terrorism advisory to address the threat of homegrown terrorism and update a previous bulletin issued in December 2015 set to expire this month. The new advisory will expire November 15 of this year.

The December bulletin described the ever-increasing risk of terrorist-inspired attacks on U.S. territory as the global terrorism landscape continues to evolve. This sentiment was reflected in the new update, which states that “In this environment, we are particularly concerned about homegrown violent extremists who could strike with little or no notice. The tragic events of Orlando several days ago reinforce this. Accordingly, increased public vigilance and awareness continue to be of utmost importance.”

Citing recent violence in San Bernardino, Paris, Brussels, and Orlando, this latest update to the National Terrorism Advisory System (NTAS) describes the possibility of terrorist-inspired attacks on a wide and diverse selection of targets across the United States.  It also discusses the U.S. government’s current counterterrorism efforts and explains how the public can help with, be prepared for, and stay informed about emerging threats on the homeland.

Additionally, President Barack Obama and Vice President Joe Biden traveled to Orlando this week to visit with survivors and the families of victims in the aftermath of the shooting. The President delivered remarks calling the attack an act of terror and hate and continued to highlight the need for gun control reform, citing the shooter’s use of a high-powered assault rifle to carry out the attack. He stated that the Federal Bureau of Investigation, in partnership with local law enforcement agencies, is engaged in an ongoing investigation of the event and that there is currently no credible knowledge of other potential attacks in the U.S.

President Obama to Participate in the SelectUSA Investment Summit and the Global Entrepreneurship Summit; Congress to Examine the U.S. Economy

President Barack Obama and Vice President Joe Biden traveled to Orlando, Florida, last Thursday to meet with the families of the 49 victims of the shooting at a gay nightclub last weekend.  President Obama will participate in this week’s SelectUSA Investment Summit, which will be held in Washington, D.C.  Secretary of State John Kerry affirmed last week that the United States has lived up to its obligations under the Joint Comprehensive Plan of Action (JCPOA) with Iran, after the Ayatollah Khamenei accused that was not the case.

Last Tuesday, the Senate passed S. 2943, the Fiscal Year (FY) 2017 National Defense Authorization Act (NDAA).  In the aftermath of the Florida attack, Senate Democrats held a nearly 15-hour filibuster concluding early Thursday morning after Republican leaders agreed to allow votes on two proposed gun control measures.  Congress is in session this week.

SelectUSA Investment Summit & Global Entrepreneurship Summit

U.S. Secretary of Commerce Penny Pritzker announced last week that 22 U.S. Chiefs of Mission will join President Barack Obama, Secretary Kerry, and other Administration officials at the 2016 SelectUSA Investment Summit early this week.  The annual Summit brings together international companies and economic development organizations to explore investment opportunities throughout the United States with the goal of creating additional jobs.

On Thursday, the President will travel to San Jose, California, to participate in the Global Entrepreneurship Summit.  This Summit seeks to showcase America’s diverse entrepreneurial spirit and will feature entrepreneurs from across the globe.

Iran – Meeting in Oslo

Secretary Kerry met with his Iranian counterpart Foreign Minister Javad Zarif while in Norway on Wednesday.  The two discussed progress on continuing implementation of the JCPOA, including issues related to banking and relief from nuclear-related sanctions.  In a press conference after the meeting, Secretary Kerry said about the United States’ implementation of the JCPOA:

“We have lifted the sanctions we said we would lift and we have completely kept faith with both the black-and-white print as well as the spirit of this effort.  In fact, I have personally gone beyond the absolute requirements of the lifting of sanctions to personally engage with banks and businesses and others who have a natural reluctance after several years of sanctions to move without fully understanding what they are allowed to do and what they are not allowed to do.”

Last Thursday, Deputy National Security Advisor (NSA) Ben Rhodes addressed an audience at The Atlantic Council – a think tank in Washington – speaking on the evolution of U.S. policy toward Iran.  He said Iran has fulfilled its commitments under the JCPOA.  Deputy NSA Rhodes also affirmed that the United States and partners have “taken the necessary steps to provide Iran with sanctions relief,” while acknowledging that banks and companies have been cautioned about engaging with a country that has faced stringent sanctions.

National Defense Authorization Act – Senate Passes Measure

By a vote of 85 to 13 last week, the Senate passed its amended NDAA bill, which authorizes $602 billion in defense spending for FY 2017.  The bill includes the Global Magnitsky Human Rights Accountability Act (S. 284).  This provision was included in a broader manager’s package that advanced last week.  President Obama has threated to veto the Senate measure, objecting to a number of provisions contained therein.

TPP – Hearing on Agriculture Focuses on the Trade Deal

The House Ways & Means Trade Subcommittee held a hearing last Tuesday focused on expanding U.S. agriculture exports and eliminating agricultural trade barriers.  In opening remarks, Chairman Dave Reichert (R-Washington) said the Obama Administration needs to work with other TPP countries, Congress, and stakeholders to develop implementation plans “as to how those countries will comply with TPP’s obligations on SPS [sanitary and phytosanitary measures] and other agriculture-related areas” to garner congressional support for the deal.  Subcommittee staff has indicated this hearing is the first of what will be a series of hearings focused on how U.S. trade policies affect specific sectors of the economy.

After speaking with President Obama last Wednesday, Senate Finance Committee Chairman Orrin Hatch (R-Utah) said about their ongoing discussion on data protection for biologics:

“Let’s put it this way, this is the first time that [the Administration has] been willing to say they want to meet the needs that I say they’ve got to meet.  They know this isn’t a matter of me being stubborn, this is a matter of getting it done right.”

Congressional Hearings This Week

  • On Tuesday, 21 June, the House Oversight and Government Reform Subcommittee on National Security and Subcommittee on Government Operations is scheduled to hold a joint hearing titled, “Radicalization in the U.S. and the Rise of Terrorism.”
  • On Tuesday, 21 June, the Senate Banking Committee is scheduled to hold a hearing titled, “The Semiannual Monetary Policy Report to the Congress.” Federal Reserve Chair Janet Yellen is scheduled to testify.
  • On Wednesday, 22 June, the House Financial Services Committee is scheduled to hold a hearing titled, “Monetary Policy and the State of the Economy.” Federal Reserve Chair Janet Yellen is scheduled to testify.
  • On Wednesday, 22 June, the House Foreign Affairs Subcommittee on Global Human Rights is scheduled to hold a hearing titled, “The President’s Visit to Vietnam: A Missed Opportunity to Advance Human Rights.”
  • On Wednesday, 22 June, the House Foreign Affairs Subcommittee on the Western Hemisphere is scheduled to hold a hearing titled, “Venezuela’s Crisis: Implications for the Region.”
  • On Thursday, 23 June, the House Foreign Affairs Subcommittee on Asia and the Pacific is scheduled to hold a hearing titled, “U.S. Policy in the Pacific: The Struggle to Maintain Influence.”
  • On Thursday, 23 June, the House Foreign Affairs Subcommittees on Global Human Rights and Emerging Threats is scheduled to hold a joint hearing titled, “Organ Harvesting: An Examination of a Brutal Practice.”
  • On Thursday, 23 June, the House Financial Services Task Force to Investigate Terrorism Financing is scheduled to hold a hearing titled, “The Next Terrorist Financiers: Stopping Them Before They Start.”
  • On Thursday, 23 June, the Senate Foreign Relations Committee is scheduled to hold a hearing titled, “NATO: Reviewing the Agenda and Assessing the Potential Outcomes of the Warsaw Summit.”

Looking Ahead

Washington is expected to focus on the following upcoming events:

  • 20-21 June: 2016 SelectUSA Investment Summit in Washington, D.C.
  • 29 June: North American Leaders Summit in Ottawa, Canada.
  • 7-11 July: President Obama travels to Poland and Spain
  • 8-9 July: NATO Summit in Warsaw, Poland
  • 18-21 July: Republican National Convention in Cleveland, Ohio
  • 25-28 July: Democratic National Convention in Philadelphia, Pennsylvania
  • By 15 October: ITC to publish a Federal Register notice related to MTB petitions

Tax-Writers Gear Up to Release Proposals; Treasury Response to Concerns Over Section 385 Regs Unclear

Legislative Activity

Coming Soon: The GOP’s Tax Reform “Blueprint”

With House Republicans expected to roll out their comprehensive tax “blueprint” this month – and lawmakers set to leave Washington on Friday, June 24 – it is likely that we will see the proposal released this week. It is quite possible, however, that the final product may not contain many substantive details (although, in light of work done by Representative Charles Boustany (R-LA) and others), perhaps more detail will be included on the corporate and international tax portions). Instead, the “blueprint” will likely serve more as a messaging piece for Republicans’ tax priorities in the 115th Congress. Notably, in speaking about what to expect, House Ways and Means Committee member Kenny Marchant (R-TX) noted that he hopes not to “alarm people” by how “radically [we’ve] lowered the rate, and change[d] the revenue side of [things] – how many deductions have to go away to get to that result.”

As for Senate Republicans, we may also soon see Senate Finance Committee Chairman Orrin Hatch’s (R-UT) “corporate integration” proposal, which is expected to provide a dividends-paid deduction to corporations in an effort to end the double taxation of corporate income. Senator Hatch had previously indicated his proposal would be released sometime in June once it receives a score from the Joint Committee on Taxation (JCT). The Senate will be in session next week while the House is on recess, which may be a particularly opportune time for Senator Hatch to finally unveil his proposal.

Not to be left out, Democrats in both Chambers are continuing to focus on short-term tax reform efforts, centering on inversions. In particular, the Senate Finance Committee is continuing its months-long work on a broad anti-inversion package. According to Todd Metcalf, Chief Democratic Tax Counsel,“[s]ome pieces of it are anti-inversion, other pieces are what I would describe as mini-reforms of the international system that might lessen the incentives to invert.” The Committee is expected to release its proposals this summer.

Senate Democrats Hoping to Move Energy Tax Extenders as Part of FAA Reauthorization

Following last week’s Senate Finance Committee hearing on energy tax policy, it remains clear that Senate Democrats will continue to push for an extension of those energy tax provisions that were (according to some lawmakers) inadvertently left out of last December’s fiscal agreement. As Senate Finance Committee Ranking Member Ron Wyden (D-OR) noted, “[t]he sooner Democrats and Republicans come together, take care of these energy extenders and clear the decks, the sooner we can turn to finding a smarter, fresh approach to energy tax policy.”

Both Senators Wyden and Chuck Schumer (D-NY) have indicated their preference to use the upcoming bill to reauthorize the Federal Aviation Administration (FAA) as the vehicle to extend these provisions; however, it is unclear whether Senate Majority Leader Mitch McConnell (R-KY) and Chairman Hatch would support such an approach. Moreover, on the House side, Chairman Brady has previously expressed his preference to address any remaining tax extenders in 2017 as Congress moves forward with its work on tax reform. With the current FAA reauthorization set to expire in mid-July, lawmakers will be forced to act soon if they hope to avoid another year-end negotiation.

This Week’s Hearings:

  • June 22: The House Small Business Subcommittee on Economic Growth, Tax, and Capital Access will hold a hearing titled “Audits and Attitudes: Is the IRS Helping or Hurting Small Businesses?”
  • June 22: The House Judiciary Committee will hold a hearing titled “Examining the Allegations of Misconduct Against IRS Commissioner John Koskinen, Part II.”

Regulatory Activity

With Comment Period on Section 385 Regulations Closing Soon, It Remains Unclear How Treasury Will Respond to Concerns

Following a June 10 briefing of Senate Democratic tax staffers by Bob Stack, Deputy Assistant Secretary for International Tax Affairs, and Mark Mazur, Assistant Secretary for Tax Policy, there has been much speculation that the Treasury Department may delay the release of its final section 385 debt-equity rules beyond Labor Day – possibly as late as December. However, despite lobbying efforts seeking a delay, it appears that the Treasury Department is likely focused more on making changes to substantive areas of the rulemaking that might be problematic if implemented as proposed (cash pooling, for example).

Beyond these types of changes, however, it is unlikely that Treasury will significantly change the substance or timing of the proposal – unless, of course, there is significant pushback from Democratic lawmakers. While lawmakers are reportedly considering a hearing on the proposals, it seems unlikely that Democrats will join Republican efforts seeking to pare back the rulemaking. The comment period on the regulations is presently expected to close on July 7.

Internal Revenue Service Electronic Advisory Committee to Hold Open Meeting

On Tuesday, June 21, the Internal Revenue Service’s (IRS) Electronic Tax Administration Advisory Committee (ETAAC) will hold an open meeting to discuss recommendations for electronic tax administration, which will be published in the ETAAC’s Annual Report due to Congress by June 30, 2016. The Internal Revenue Service is expected to respond to the various recommendations.

D.C. Circuit Upholds FCC’s Net Neutrality Rules

Regulatory Activity

D.C. Circuit Rules 2-1 to Uphold FCC Net Neutrality Rules

On June 14, the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) in a 2-1 decision upheld the FCC’s “net neutrality” rules applicable to providers of broadband Internet access service (BIAS), which were released in a March 12, 2015 Report and Order on Remand, Declaratory Ruling, and Order (Order). In the Order, the FCC reclassified BIAS, previously classified as an information service, as a telecommunications service – that is, a service that “transmits messages unadulterated by consumer processing” – subject to common carrier regulation. The D.C. Circuit found that the FCC’s determination that BIAS is a telecommunications service because consumers view it as such had “extensive support in the [FCC’s] record and together justif[ied] the [FCC’s] decision to reclassify broadband as a telecommunications service.” Specifically, the D.C. Circuit stated that it was “hardly controversial” that consumers rely on BIAS to access third-party content, such as “Netflix and YouTube,” rather than to access BIAS “providers’ own add-on applications.”

In dissent, Senior Circuit Judge Williams stated that the FCC’s decision to reclassify BIAS “fails for want of reasoned decisionmaking” and that the FCC “relied on explanations contrary to the record before it and failed to consider issues critical to its conclusion.” BIAS providers are planning to appeal the decision to the full D.C. Circuit or to the Supreme Court.

FCC Releases Final Agenda for June 24 Open Meeting

The FCC has announced that the following items are on the agenda for its June 24 Open Meeting:

  • Process Reform for Executive Branch Review of Certain FCC Applications and Petitions Involving Foreign Ownership: The FCC will consider a Notice of Proposed Rulemaking that “seeks comment on changes to streamline and increase the transparency of the Executive Branch review of applications and petitions for national security, law enforcement, foreign policy and trade policy concerns.”
  • Amendment of Part 11 of the Commission’s Rules Regarding the Emergency Alert System: The FCC will consider a Report and Order that would “revise the Emergency Alert System rules by adding new event codes covering extreme high winds and storm surges caused by Category 3 (and greater) hurricanes.”
  • Improving Outage Reporting for Submarine Cables and Enhanced Submarine Outage Data: The FCC will consider a Report and Order to “require submarine cable licensees to report communications network outages to the FCC.”

FCC Chairman Tom Wheeler posted to the FCC Blog on June 3 discussing these agenda items. The FCC’s Open Meeting is scheduled to commence at 10:30 a.m. on June 24 in the Commission Meeting Room of the FCC’s headquarters at 445 12th Street S.W., and will be streamed live at fcc.gov/live.

Legislative Activity

Senate Commerce Committee Approves Five-Year Open Internet Transparency Exemption for Small ISPs

On June 15, the Senate Commerce, Science, and Transportation Committee (Senate Commerce Committee) approved S.2283, the Small Business Broadband Deployment Act of 2015, by voice vote. The bill, introduced by Sen. Steve Daines (R-MT), exempts Internet service providers (ISPs) with 250,000 or fewer subscribers from the enhanced transparency requirements of the Federal Communications Commission’s (FCC’s) March 2015 Open Internet Order for a period of five years after the enactment of the bill. The bill further requires the FCC to report to Congress within 180 days of its enactment on whether or not the exemption should be made permanent. The Open Internet Order, which was upheld by the U.S. Court of Appeals for the D.C. Circuit on June 14, requires ISPs to publicly disclose accurate information regarding their network management practices, performance, and the commercial terms of their Internet service. Recognizing that smaller ISPs would find the transparency requirements burdensome, the FCC established a temporary exemption for ISPs with 100,000 or fewer subscribers through December 15, 2015. On December 15, 2015, the FCC extended the exemption until December 15, 2016.

The Senate bill originally called for a permanent exemption from the FCC’s transparency requirements for ISPs with 1,500 or fewer employees or 500,000 or fewer subscribers. An amendment offered by Sens. Steve Daines (R-MT) and Joe Manchin (D-WV) proposed a five-year exemption for providers with 250,000 or fewer subscribers to align the bill with the terms of the House companion bill, H.R.4596, passed by the House on March 16. A subsequent amendment offered by Sen. Maria Cantwell (D-WA) attempted to change the exemption period to three years and lower the subscriber threshold to 100,000 subscribers. Sen Cantwell’s amendment failed and the final version of the bill contains a five-year exemption for ISPs with 250,000 or fewer subscribers. The bill now goes to the full Senate for consideration.

Senate Appropriations Committee Approves FY 2017 Appropriations Bill Decreasing FCC’s Budget

On June 16, the Senate Appropriations Committee approved S.3067, the Fiscal Year (FY) 2017 Financial Services and General Government Appropriations Act, 2017. The $22.4 billion measure, which funds numerous federal agencies for the FY ending September 30, 2017, contains appropriations for the FCC. Specifically, the bill recommends an appropriation of $341,315,000 for the FCC for FY 2017, a decrease from the $384 million the FCC received for FY 2016. Of that money, $16,866,992 is to be used to support moving expenses for the FCC’s expiring lease on its current headquarters for either relocation to a new facility with “substantially reduced square footage and lower rental expenses or to significantly reduce the agency’s leased space at its current location” according to the Committee Report.

The bill also contains several recommendations touching on the FCC’s substantive work. First, the bill requires the FCC to notify the House and Senate Committees on Appropriations, the Senate Commerce Committee, and the House Committee on Energy and Commerce if additional money is needed to cover the repacking costs associated with relocating broadcasters to new channel assignments during the FCC’s Broadcast Incentive Auction, which began on March 29. The Committee noted that it was “gravely concerned” with the impact that the auction will have on television broadcasters who will have to relocate during the repacking process. The Committee also expressed concern as to whether the $1.75 billion Broadcaster Relocation Fund would be sufficient to cover the repacking costs and whether the FCC could meet the current 39-month deadline established for stations to be repacked. To alleviate these concerns, the bill requires the FCC to submit a report to the Senate Appropriations Committee no later than 90 days after completion of the forward auction indicating, among other things, how many television stations will need to be repacked. The legislation also requires the FCC to submit a report no later than 240 days after completion of the forward auction that would include information relating to the construction schedule for relocating television stations and whether television viewers will face any service disruptions.

The bill also contains provisions relating to Joint Sales Agreements (JSAs), the financial arrangements between local television broadcasters that govern the sale of advertising between stations, and the FCC’s set-top box proceeding. The JSA provision indicates that the FCC “may not require the termination or modification of such agreement[s] as a condition of the transfer or assignment of a station license or transfer of station ownership or control.” The JSA provision further indicates that once a television station is sold, the FCC must allow stations to enter into new JSAs on substantially similar terms and conditions as the prior agreement. The set-top box provision states that the FCC cannot take action in that proceeding until 180 days after it has completed a study that “evaluates the availability of other market-based solutions.”

Lawmakers Express Concern Regarding FCC’s Lifeline Program Reform

On June 16, a group of 10 Republican Senators and 15 Republican Representatives wrote a letter to FCC Chairman Tom Wheeler expressing concern about the impact of the FCC’s Third Report and Order, Further Report and Order, and Order on Reconsideration (2016 Lifeline Order), which made reforms to the Lifeline program, a government subsidy program administered by the FCC that provides discounted phone service to low income consumers. The 2016 Lifeline Order, discussed in further detail here, extended Lifeline subsidies for low-income households to mobile and fixed broadband access and also established an FCC-administered national provider certification mechanism as an alternative to existing state-administered programs. The lawmakers argued that the certification mechanism “drastically curtail[s] the important state role in preventing waste, fraud, and abuse.” They argued further that the 2016 Lifeline Order “provides little guidance” as to how the national verification mechanism will coordinate with the more than 20 states that have implemented their own processes for determining eligibility for Lifeline. Because data regarding program eligibility is “typically housed at the state level,” the lawmakers argued that it would be more cost-effective to allow the states to continue serving as the main eligibility verifiers. They urged the FCC to clarify whether states will be permitted to opt out of the federal certification mechanism and stressed the states’ past role in preventing waste, fraud, and abuse in the program.

This Week’s Hearings:

  • Monday, June 20: The Subcommittee on Information Technology of the House Oversight and Government Reform Committee will hold a hearing entitled “Federal Efforts to Improve Cybersecurity.” The purpose of the hearing is to obtain the view of the private sector regarding cyber threats, pressing issues for cybersecurity strategy, and implementation of the Cybersecurity Act of 2015, which establishes a mechanism for cybersecurity information sharing among private sector and federal government entities. The following witnesses will testify at the hearing: Dr. Eunice Santos, Chair, Department of Computer Science, Illinois Institute of Technology; Michael Carano, Executive Director, ChicagoFIRST; Gary Horn, Vice President, Technical Services & CTO, Advocate Health Care; and Patty Hatter, Vice President, Intel Security Group.
  • Tuesday, June 21: The Communications, Technology, Innovation and the Internet Subcommittee of the Senate Commerce Committee will hold a hearing entitled “FirstNet Oversight: An Update on the Status of the Public Safety Broadband Network.” The following witnesses will testify at the hearing: Michael Poth, Chief Executive Officer, FirstNet; Jeffrey McLeod, Director of Homeland Security and Public Safety Division, National Governors Association; Major General Arthur J. Logan, Single Point of Contact (SPOC), State of Hawaii, and Hawaii Adjutant General; and Andrew Katsaros, Assistant Inspector General for Audit, U.S. Department of Commerce. The hearing will focus on “the progress made since the Committee last held an oversight hearing in March 2015” and will focus on “FirstNet’s progress in meeting benchmarks; the cost of deployment, particularly in rural areas; and the public safety broadband network’s plans to become a self-funding entity” according to a press release.
  • Thursday, June 23: The Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs will hold a hearing entitled “Customer Service and Billing Practices in the Cable and Satellite Television Industry.” The following witnesses will testify at the hearing: Tom Karinshak, Senior Vice President, Customer Services, Comcast; John Keib, Former Executive Vice President and Chief Operating Officer, Residential Services, Time Warner Cable; Kathleen Mayo, Executive Vice President, Customer Operations, Charter Communications; Rasesh Patel, Senior Vice President, Product Management, AT&T; and Kathleen Schneider, Senior Vice President, Operation, Dish Network.