Congress Continues Consideration of Appropriations Bills; House Takes on Terrorism Financing

Note from Capital Thinking

As Congress prepares to wrap up remaining business in Washington this week prior to adjourning until the Fall, please be advised that Capital Thinking will also be on recess until Congress returns. Expect our next post on Monday, September 12.

Senate Legislative Activity

The Senate will convene on Monday, July 11, at 4:00pm. Following any Leader remarks, the Senate will resume consideration of the motion to proceed to Calendar #524, H.R.5293 – DOD Appropriations.  There will be no roll call votes during Monday’s session. The next roll call vote is expected around 12:00pm on Tuesday, July 12.

House Legislative Activity

On Monday, July 11, 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. 5322 – U.S. Territories Investor Protection Act of 2016;
  2. H.R. 5421 – National Securities Exchange Regulatory Parity Act of 2016, as amended;
  3. H.R. 5469 – To require the Secretary of the Treasury to direct the United States Executive Director at the International Monetary Fund to support the capacity of the International Monetary Fund to prevent money laundering and financing of terrorism;
  4. H.R. 5594 – National Strategy for Combating Terrorist, Underground, and Other Illicit Financing Act;
  5. H.R. 5606 – Anti-terrorism Information Sharing Is Strength Act, as amended;
  6. H.R. 5607 – Enhancing Treasury’s Anti-Terror Tools Act, as amended;
  7. H.R. 5602 – To amend title 31, United States Code, to authorize the Secretary of the Treasury to include all funds when issuing certain geographic targeting orders, and for other purposes;
  8. H.R. 4785 – DHS SAVE Act;
  9. H.R. 5385 – Quadrennial Homeland Security Review Technical Correction Act of 2016;
  10. H.R. 5056 – Airport Perimeter and Access Control Security Act of 2016;
  11. H.R. 4404 – Terrorist and Foreign Fighter Travel Exercise Act of 2016, as amended;
  12. H.R. 5252 – To designate the United States Customs and Border Protection Port of Entry located at 1400 Lower Island Road in Tornillo, Texas, as the “Marcelino Serna Port of Entry”;
  13. H.R. 5588 – Veterans’ Compensation COLA Act of 2016;
  14. H.Con.Res. 138 – Designating the George C. Marshall Museum and George C. Marshall Research Library in Lexington, Virginia, as the National George C. Marshall Museum and Library;
  15. H.R. 5530 – HBCU Capital Financing Improvement Act;
  16. H.R. 3178 – Strengthening Transparency in Higher Education Act, as amended;
  17. H.R. 3179 – Empowering Students Through Enhanced Financial Counseling Act;
  18. H.R. 5528 – Simplifying the Application for Student Aid Act;
  19. H.R. 5529 – Accessing Higher Education Opportunities Act;
  20. H.R. ___ – Providing for Concurrence in the Senate Amendments to H.R. 636 with House Amendments;
  21. H.R. 5639 – National Institute of Standards and Technology Improvement Act of 2016;
  22. H.R. 5636 – National Institute of Standards and Technology Campus Security Act;
  23. H.R. 5640 – Electricity Storage Innovation Act, as amended; and
  24. H.R. 5638 – Solar Fuels Innovation Act, as amended

The House will also consider H.R. 4768 – Separation of Powers Restoration Act of 2016 (Structured Rule).

On Tuesday, July 12, the House will meet at 10:00am for morning hour and at 12:00pm for legislative business. H.R. 5658 – TALENT Act of 2016 will be considered under suspension of the rules. The House will also begin consideration of H.R. 5538 – Department of the Interior, Environment, and Related Agencies Appropriations Act, 2017 (Subject to a Rule).

On Wednesday and Thursday, July 13-14, the House will meet at 10:00am for morning hour and at 12:00pm for legislative business. On Friday, July 15, the House will meet at 9:00am for legislative business, with last votes expected by 3:00pm. The House will consider:

  1. S. 304 – Conscience Protection Act of 2016, Rules Committee Print (Subject to a Rule);
  2. H.R. 5119 – No 2H2O from Iran Act (Subject to a Rule);
  3. Complete Consideration of H.R. 5538 – Department of the Interior, Environment, and Related Agencies Appropriations Act, 2017 (Subject to a Rule);
  4. H.R. 4992 – United States Financial System Protection Act of 2016 (Subject to a Rule);
  5. H.R. 5631 – To hold Iran accountable for its state sponsorship of terrorism and other threatening activities and for its human rights abuses, and for other purposes; and
  6. Senate Amendment to the House Amendment to S. 764 – GMO Labeling Requirements (Subject to a Rule).

The House may also consider additional legislative items.

House to Consider FY 2017 Interior-Environment Spending Legislation; House Appropriations Committee to Mark-Up Final Two Remaining Spending Bills; Senate Action Stalls; Future of Zika Negotiations Unclear; Division Over Length of a Fiscal Continuing Resolution

Legislative Activity

House Floor Consideration of Interior-Environment Appropriations

The House Committee on Rules will meet this evening to review the 157 amendments filed to the Interior-Environment FY 2017 appropriations legislation (H.R. 5538), many of which would halt the implementation of climate and environment rules proposed by the Administration, such as those related to fracking and oil and gas operations.  Others address: limiting the display of Confederate flag imagery in national parks and federal cemeteries, which derailed the Appropriations process last year; and preventing the Department of Interior from reducing sales of oil and gas drilling leases on the Arctic.

House Appropriations Committee Considers Labor-HHS-Education and State-Foreign Operations legislation

Last month, the Senate passed their version of the Labor-HHS-Education (LHHS) Appropriations bill (S. 3040) out of full committee with only one dissention vote and no amendments.  The largely bipartisan bill was the first LHHS bill to clear the committee in seven years, and most committee members were pleased with the levels of funding and lack of controversial policy riders.  The House companion legislation released by the subcommittee last week differs greatly by defunding Title X family planning and the omission of funding for year-round Pell grants, as proposed by the Senate.  Additionally, the Senate bill proposed an increase of $2 billion for the National Institutes of Health (NIH) while the House bill provides a bump of $1.25 billion. During subcommittee consideration, Democrats raised objections to both spending and policy provisions within the bill. Similar debate is expected with the full committee takes up the bill this week.

The $52 billion State-Foreign Operations legislation is less controversial.  Potential discussion and/or amendments related to the defunding of the Green Climate Fund, the UN Educational, Scientific, and Cultural Organization (UNESCO), the Intergovernmental Panel on Climate Change, and the UN Population Fund (UNFPA) could occur.  The legislation maintains longstanding pro-life riders, such as the “Tiahrt Amendment,” which ensures family planning programs are voluntary, and the “Helms Amendment,” which bans foreign aid from being spent on abortions.  Debates over reproductive rights are also possible during full committee consideration this week.

Senate Action Stalls

Meanwhile, in the Senate, hopes of bipartisan appropriations legislation faded after a party-line cloture vote failure last week prevented the Defense Appropriations bill from coming to the floor for consideration. Democrats explained their opposition to consideration of appropriations legislation in a letter to Republicans, explaining that their approach violates last year’s budget deal (P.L. 114-74).  Criticisms include Republicans’ insistence on offsetting emergency spending; the inclusion of policy riders; and the inequity of defense and non-defense spending.  Democrats also object to the use of Overseas Contingency Operations Fund (OCO) to boost defense spending.  Senate Majority Leader Mitch McConnell (R-KY) filed a motion to reconsider the measure this week, but it is expected to fall short as well.

Zika Negotiations

Following House passage of  a conference report for the Fiscal Year 2017 Military Construction-VA appropriations report including $1.1 billion in counter-Zika measures, a cloture vote in the Senate for the measure failed over Democratic disapproval of provisions in the bill that they deem “poison pills”, such as restricting the funding to health centers that provide contraception and abortion services, relaxing clean water guidelines on pesticides, and lifting restrictions on flying the Confederate battle flag in veterans’ cemeteries.  Progress before the summer break remains unclear.

Continuing Resolution

With only five legislative days left until the summer recess and only a few legislative days scheduled for September, appropriations discussions are turning toward development of what appears to be an inevitable Continuing Resolution (CR) to start out FY 2017. The length of the CR is the point of debate. Conservative members of the House GOP caucus are pushing for a six-month CR, citing the lack of fiscal discipline and omission of policy riders found in recent omnibus bills.  Members of the House Freedom Caucus are pushing GOP leadership for a vote on such a measure as soon as this week. However, House appropriators do not want to see such a lengthy CR because the committee has completed most of its work and is well-positioned to pull together an end-of-year omnibus spending bill with Senate appropriators.   Discussions on the CR have not yet begun in earnest in the Senate.

While unusual, extending a CR through a new Administration is not unheard of.  In both September of 2008 and 2012, Congress passed six-month long CRs, leaving the resolution of the budget to the new Administration and new Congress.

This Week’s Hearings:

  • On Wednesday, July 13, the House Appropriations Committee will hold a markup of the Fiscal Year 17 Labor, Health and Human Services, Education, and Related Agencies Act.
  • On Wednesday, July 13, the House Budget Committee will hold a hearing titled “Restoring the Trust for Americans At or Near Retirement.”  The witnesses will be:
    • Dr. Jason J. Fichtner , Senior Research Fellow, Mercatus Center, George Mason University;
    • Mr. Daniel C. Weber, Founder, Association of Mature American Citizens; and
    • Mr. Scott Gottlieb, M.D., Resident Fellow, American Enterprise Institute
  • On Wednesday, July 13, the Senate Appropriations Subcommittee on Energy and Water Development will hold a hearing titled “Review of Budget Requirements & Justification for the Nuclear Cruise Missile.”  The witnesses will be:
    • Dr. William Perry, Former Secretary of Defense;
    • Dr. John Hamre, Former Deputy Secretary of Defense;
    • Admiral Cecil Haney, Commander, U.S. Strategic Command, U.S. Department of Defense; and
    • The Honorable Robert Scher, Assistant Secretary of Defense for Strategy, Plans and Capabilities, U.S. Department of Defense
  • On Wednesday, July 13, the Senate Appropriations Military Construction, Veterans Affairs, and Related Agencies will hold a hearing titled “Review of the VA Electronic Health Record Network (VistA).” The witnesses will be:
    • Ms. Valerie C. Melvin, Director, Information Management and Technology Resources Issues, U.S. Government Accountability Office; and
    • Dr. Lauren Thompson, Director, DoD/VA Interagency Program Office, U.S. Department of Defense

House Moves Forward Perkins CTE Reauthorization and Labor-HHS-Education Appropriations Bill; WIOA Final Rules Released

Legislative Activity

House Committee on Education and the Workforce Approves Reauthorization of the Carl D. Perkins Career and Technical Education Act

 The House Committee on Education and the Workforce approved H.R. 5587, theStrengthening Career and Technical Education for the 21st Century Act. Introduced by Reps. Glenn “GT” Thompson (R-PA) and Katherine Clark (D-MA), the legislation reauthorizes and reforms the Carl D. Perkins Career and Technical Education Act to prepare more Americans to enter the workforce with the skills they need to compete for high-skilled, in-demand jobs. The bill passed the committee by a vote of 37 to 0.

The bipartisan bill received support from over 200 groups and effectively modernizes the Carl D. Perkins Career and Technical Education Act, which has funded career and technical education programs since being passed in 1984. It requires the Department of Education to cede control over how states measure success in their programs. It also gives middle schools access to funds, provides opportunities for dual enrollment in secondary and post-secondary programs, increases use of technology and emphasizes employment opportunities for disenfranchised students.

Four amendments were passed unanimously, including one to allow the use of state and local funds to include arts and design skills in CTE and one to ensure states receive 90 percent of the previous year’s funding. A detailed summary of the legislation can be found here.

House Appropriations Subcommittee Approves Labor-HHS-Education Spending Bill

On July 7, the Labor- HHS- Education subcommittee advanced a funding bill along party longs. The bill seeks to redirect about $1.3 billion Pell Grant surplus money, scales back funding on other education programs, and blocks a number of Obama administration policies, including the “gainful employment” rule targeting for-profit colleges, the overtime rule, and the fiduciary rule.

The legislation would increase the maximum Pell Grant available to students to $5,935 next year from the current $5,815, but has received harsh criticism from Democrats for taking away money from the $7.8 billion surplus as a cut to the program.

Unlike the companion Senate bill, the House legislation does not restore year-round Pell Grants. The subcommittee rejected an amendment along party lines introduced by Representative Lucille Roybal-Allard (D-CA) that would have reinstated the benefit, which was eliminated in 2011. Chairman Tom Cole (R-OK) said that while he opposed including year-round Pell in the bill, it was an idea that’s “on the table for discussion” with the Senate. The measure now heads to the full House Appropriations Committee where it is expected to be marked up next week.

House Democrats Urge More Computer Science Funding

 A group of 20 House Democrats are requesting $250 million in new funding for computer science education. Members of the New Democratic Coalition sent a July 1 letter to House appropriators urging them to fund new competitive grants to help school districts expand their computer science offerings, especially for underrepresented students. This request is more than double what President Obama proposed earlier this year as part of its “Computer Science for All” initiative.

Members of Congress Send Letter to Higher Education Organizations on Changes to FAFSA

On July 6, 26 members of Congress sent a letter to the heads of six major higher education organizations calling on them to ensure their member colleges respect recent changes that created an “early FAFSA.” The new regulations allow students to use two previous years’ tax data, which means FAFSA will be available three months sooner on October 1, instead of January 1, 2017. Lawmakers are concerned colleges and universities will move up their priority financial aid deadlines, effectively putting students most in need of additional time to consider financial options at a greater disadvantage.

This Week’s Hearings:

  • On Wednesday, July 13 at 10:00 am EST, the House Committee on Appropriations will markup the Labor, Health and Human Services, Education Appropriations bill.
  • On Thursday, July 14 at 10:00 am EST, the Senate Committee on Health, Education, Labor, and Pensions will hold a hearing titled, “ESSA Implementation: Perspectives from Stakeholders on Proposed Regulations.”

Regulatory Activity

Workforce Innovation and Opportunity Act Final Rules

On June 30, the Departments of Labor and Education published final rules to implement the Workforce Innovation and Opportunity Act (WIOA).  The regulations seek to modernize the education and workforce system and represent a more integrated, job-driven approach to support communities and expand job growth.  Both Departments received input from stakeholders, including employers and other community leaders. The rules detail the goals of an alert and effective education and workforce and how partners can work to achieve those goals.

The final rules consist of a joint rule, issued by both agencies in collaboration with the Departments of Health and Human Services, Agriculture, and Housing and Urban Development. The joint rule implements co-administered state planning, performance accountability, and one-step delivery system requirements.  There is also a Department of Labor rule implementing activities under Title I (Adult, Dislocated Worker, Youth, Job Corps, and National Programs) and Title III (amending the Wagner-Peyser Act); and three Department of Education rules implementing requirements of Title II (Adult Education and Family Literacy Act) and Title IV (amending the Rehabilitation Act of 1973).  The regulations and accompanying resources are available at the Labor Employment and Training Administration (ETA) WIOA site, the Education Office of Special Education and Rehabilitative Services (OSERS) WIOA site, and the Education Office of Career, Technical, and Adult Education (OCTAE) WIOA site.

Senate To Possibly Advance Energy Bill; House To Examine Development Opportunities For The Mancos; Interior Moves Forward With Ocean Planning; EPA Tackles Haze

Legislative Action

Comprehensive Energy Bill

While leadership continues its discussion, it is possible that the Senate may consider a vote to proceed to conference on the comprehensive House and Senate Energy bills before July 15. Should a vote for conference succeed, Senate conferees would need to be selected and conference would not begin until after Congress returns from its summer recess.

This Week’s Hearings:

  • On Tuesday, July 12, the Senate Energy and Natural Resources Committee, Subcommittee on Energy, will hold a hearing to examine S. 3018, the Securing Energy Infrastructure Act, which would establish a pilot program to address potential energy disruptions. 
  • On Tuesday, July 12, the Senate Energy and Natural Resources Committee will hold a markup of the Western Water Supply and Planning Enhancement Act, S. 2902. The bill addresses potential changes to long-term water supplies, use of existing water supply infrastructure and existing water rights.
  • On Tuesday, July 12, the House Committee on Natural Resources, Subcommittee on Energy and Mineral Resources, will hold a hearing to examine “Opportunities and Challenges of Developing the Mancos Shale Resource.”
  • On Tuesday, July 12, the House Committee on Natural Resources, Subcommittee on Water, Power, and Oceans, will hold a hearing regarding “Changing Demands and Water Supply Uncertainty in California.”
  • On Wednesday, July 13, the House Committee on Natural Resources, Subcommittee on Energy and Mineral Resources, will hold a hearing on the Public Land Renewable Energy Development Act of 2015 (H.R. 2663).
  • On Wednesday, July 13, the House Energy and Commerce Committee, Subcommittee on Environment and the Economy, will hold an oversight hearing on Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) implementation.
  • On Thursday, July 14, the House Committee on Natural Resources, Subcommittee on Oversight and Investigations, will hold an oversight hearing on the status of the Ivanpah plant and other federal loan-guaranteed solar energy projects on Bureau of Land Management (BLM) Lands.

Regulatory Action

Mid-Atlantic Resource Planning

The Department of Interior, Bureau of Ocean Energy Management, is seeking comment on its Mid-Atlantic Regional Ocean Action Plan. The plan will cover six states: New York, New Jersey, Pennsylvania, Delaware, Maryland and Virginia. Pursuant to the National Ocean Policy, the plan will address a “comprehensive, adaptive, integrated, ecosystem-based, and transparent ocean planning process for current and anticipated uses of ocean and coastal areas.” Comments are due September 6.

Future of Regional Haze 2018-2028

The Environmental Protection Agency (EPA) is seeking comment on a draft guidance document for industry to mitigate regional haze. According to the EPA, the document is intended “to provide background information and guidance to states on how to develop and submit regional haze state implementation plans (SIPs) for the second implementation period (2018–2028).” Comments are due August 22.

Climate Change

The U.S. Global Change Research Program (USGCRP) is seeking comment on its proposed National Climate Assessment. The USGCRP is mandated under the Global Change Research Act of 1990 to conduct a quadrennial National Climate Assessment (NCA). This will be the fourth NCA assessment. Among other areas, the program is interested in receiving regional-specific information as well as “suggestions regarding overarching themes to be addressed in this assessment.” Comments are due July 29.

Financial Services Reform Efforts Slow Moving, as Lawmakers Turn to Fight on Terrorism Financing; SEC to Hold Open Meetings

Legislative Activity

Lawmakers Press on with Financial Services Reform Efforts

On June 23, 2016, House Financial Services Committee Chairman Jeb Hensarling (R-TX) unveiled a discussion draft of legislation aimed at replacing the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The legislation, Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs (Financial CHOICE Act), focuses, like many of the items on the Republicans’ agenda, on fostering a “pro-growth” climate within the U.S. economy. The measure seeks to end taxpayer-funded bailouts of large financial institutions, relieve banks that elect to be strongly capitalized from “growth-strangling regulation,” impose tougher penalties on those who commit fraud, and require greater accountability from Washington regulators. Key changes the Financial CHOICE Act aims to make include:

  • Repealing the Financial Stability Oversight Council’s (FSOC) authority to designate systemically important financial institution (SIFIs), as well as any previous SIFI designations;
  • Placing all financial regulatory agencies “on a budget”;
  • Subjecting the Federal Reserve’s prudential regulatory and financial supervision activities to the Congressional appropriations process;
  • Repealing the Volcker Rule; and
  • Eliminating many of Dodd-Frank’s “unnecessary disclosures,” such as pay ratios

Despite continued efforts to reform the financial services landscape in the House, the issue has gotten little attention in the Senate as of late – and there is no sign that trend will change any time soon. As such, it is likely that any comprehensive financial services reform measures will have to wait until the 115th Congress.

In the near-term, however, it is possible Congress will enact targeted financial services reform via the appropriations process. In fact, the House by a largely party line vote of 239-185 on Thursday, July 7 passed the Financial Services and General Government Appropriations bill, which contains many substantive reforms, including:

  • Reducing the IRS’ budget by $236 million, to $10.9 billion, bringing the agency’s funding below 2008 levels;
  • Increasing the oversight of the Consumer Financial Protection Bureau (CFPB) by bringing funding for the agency under the annual Congressional appropriations process, instead of direct funding from the Federal Reserve;
  • Changing the leadership structure of the CFPB from a single Director to a five-member Commission;
  • Requiring the CFPB to study the use of pre-dispute arbitration prior to issuing regulations;
  • Delaying the CFPB rule on short-term, small dollar lending;
  • Capping the Security and Exchange Commission’s (SEC) budget at $1.5 billion, which is $50 million below the fiscal year 2016;
  • Rescinding the unobligated balances of the SEC’s “reserve fund” – a “slush fund” created under Dodd-Frank from which the SEC can spend without Congressional oversight; and
  • Prohibiting the SEC from requiring the disclosure of political contributions in SEC filings

President Obama has threatened to veto the bill.

The Senate version of the Financial Services and General Government Appropriations bill is less controversial, as it contains few substantive policy changes. Nevertheless, it is quite clear that the regular appropriations process will not reach a resolution by the end of the fiscal year, likely necessitating that Congress look to a continuing resolution, which may or may not contain provisions passed by the House.

Task Force Increases Efforts to Block Terrorism Financing

By way of follow-up to the myriad of hearings held over the last two years by the House Financial Services Committees’ Task Force to Investigate Terrorism Financing, Members of the Task Force have recently released six bills aimed at helping to curb the terrorism finance:

  • H.R. 5594: To require the establishment of a national strategy for combating the financing of terrorism and related financial crimes, and for other purposes;
  • H.R. 5608: To prevent Iran from directly or indirectly receiving assistance from the Export-Import Bank of the United States;
  • H.R. 5607: To enhance the Department of the Treasury’s role in protecting national security, and for other purposes;
  • H.R. 5606: To facilitate better information sharing to assist in the fight against the funding of terrorist activities, and for other purposes;
  • H.R. 5603: To authorize the Secretary of the Treasury to pay rewards under an asset recovery rewards program to help identify and recover stolen assets linked to foreign government corruption and the proceeds of such corruption hidden behind complex financial structures in the United States and abroad; and
  • H.R. 5602: To amend title 31, United States Code, to authorize the Secretary of the Treasury to include all funds when issuing certain geographic targeting orders, and for other purposes.

Four of these six bills will be taken up by the full House this week and are expected to pass. Moreover, the Task Force is expected to release an in-depth report and recommendations this fall, which will likely reach beyond the scope of the recently-released legislation and further address what needs to be done to update the nation’s banking laws to better prevent the financing of terrorist activity.

This Week’s Hearings:

  • Tuesday, July 12: The House Financial Services Committee will hold a hearing titled “Making a Financial Choice: More Capital or More Government Control?”
  • Tuesday, July 12: The House Financial Services Subcommittee on Financial Institutions and Consumer Credit will hold a hearing titled “Examining the Opportunities and Challenges with Financial Technology (“FinTech”): The Development of Online Marketplace Lending”
  • Wednesday, July 13: The House Financial Services Committee will hold a hearing titled “HUD Accountability”
  • Wednesday, July 13: The House Financial Services Committee will mark-up the following legislation:
    • H.R. ____, To prohibit the Secretary of the Treasury from issuing certain licenses in connection with the export or re-export of a commercial passenger aircraft to the Islamic Republic of Iran, to require annual reports by the Secretary of the Treasury and the Export-Import Bank on financing issues related to the sale or lease of such a commercial passenger aircraft or spare parts for such an aircraft, and for other purposes;
    • H.R. ____, To prohibit the Secretary of the Treasury from authorizing certain transactions by a U.S. financial institution in connection with the export or re-export of a commercial passenger aircraft to the Islamic Republic of Iran, and for other purposes; and
    • H.R. ____, the No Ex-Im Assistance for Terrorism Act
  • Wednesday, July 13: The House Oversight and Government Reform Committee will hold a hearing titled “Oversight of the FDIC Application Process”
  • Wednesday, July 13: The House Agriculture Committee will hold a hearing titled “Examining the CFTC’s Proposed Rule: Regulation Automated Trading”
  • Thursday, July 14: The House Financial Services Subcommittee on Oversight and Investigations will hold a hearing titled “The Financial Stability Oversight Council and the Designation of Non-Bank Financial Companies”
  • Thursday, July 14: The Senate Banking Committee will hold a hearing titled “Evaluating the Financial Risks of China”

Regulatory Activity

SEC to Hold Two Open Meetings

The (SEC) will hold an open meeting on Wednesday, July 13, to: (1) discuss whether to adopt certain amendments and issue guidance relating to Regulation SBSR under the Securities Exchange Act of 1934; (2) discuss whether to propose amendments to rules under the Securities Exchange Act of 1934 regarding disclosure of order handling information; (3) discuss whether to propose amendments to address redundant, duplicative, overlapping, outdated, or superseded disclosure requirements; and (4) vote on amendments to its Rules of Practice regarding administrative proceedings.

Additionally, the SEC Investor Advisory Committee will hold an open meeting on Thursday, July 14, to discuss: (1) the state of sustainability reporting; and (2) investment company reporting modernization.

Senate to Vote on the Comprehensive Addiction and Recovery Act (CARA) Conference Report; CMS Issues Proposed Rule to Medicare Physician Fee Schedule; CMS Proposes OPPS and ASC System Changes

Legislative Activity

Senate to Vote on the Comprehensive Addiction and Recovery Act (CARA) Conference Report

Senate Majority Leader Mitch McConnell (R-KY) announced the Senate is expected to vote on the Comprehensive Addiction and Recovery Act (S. 524) conference report this week. The bipartisan legislation authorizes grant programs; creates a task force on pain management; expands prescription drug take-back programs; and increases access to medication-assisted treatments. Although there was disagreement over funding levels, the House and Senate opioid conferees were able to finalize the legislative text and filed the conference report last week. Addressing the opioid epidemic is a priority for legislators and constituents alike.  The House of Representatives ended the week by passing the conference report by a 407- 5 vote and the conference report is supported by over 200 leading advocacy groups.  The Senate is the final stop for the CARA conference report before heading to the president’s desk.

This Week’s Hearings:

  • Tuesday, July 12: The House Committee on Ways and Means will hold a hearing titled “Rising Health Insurance Premiums Under the Affordable Care Act.”
  • Tuesday, July 12: The House Committee on Energy and Commerce Subcommittee on Health will hold a hearing titled “Strengthening our National Trauma System.”
  • Tuesday, July 12: The Senate Committee on Finance will hold a hearing titled “Examining the Stark Law: Current Issues and Opportunities.”
  • Tuesday, July 12: The House Committee on Natural Resources Subcommittee on Indian, Insular, and Alaska Native Affairs will hold a hearing titled “H.R. 5406, the Helping Ensure Accountability, Leadership, and Trust in Tribal Healthcare Act.”
  • Tuesday, July 12 and Wednesday, July 13: The House Committee on Energy and Commerce will hold a markup to consider a number of bills including H.R. 921, the Sports Medicine Licensure Clarity Act of 2015.
  • Wednesday, July 13: The House Committee on Appropriations will hold a markup to consider the FY 2017 Labor, Health and Human Services, and Education Bill.
  • Wednesday, July 13: The House Committee on Veterans’ Affairs Subcommittee on Disability Assistance and Memorial Affairs will hold a hearing titled “TBI Claims: VA’s Failure to Provide Adequate Examinations.”
  • Wednesday, July 13: The Senate Committee on Finance will hold a hearing titled “Medicare Access and CHIP Reauthorization Act of 2015: Ensuring Successful Implementation of Physician Payment Reforms.”
  • Wednesday, July 13: The House Committee on Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade will hold a hearing titled “Disrupter Series: Health Care Apps.”
  • Wednesday, July 13: The Senate Committee on Appropriations Subcommittee on Military Construction, Veterans Affairs, and Related Agencies will hold a hearing titled “Hearing to Review the VA Electronic Health Record Network (VistA).”
  • Wednesday, July 13: The House Committee on Oversight and Government Reform Subcommittee on Health Care, Benefits, and Administrative Rules will hold a hearing titled “From Premium Increases to Failing Co-ops: An Obamacare Checkup.”
  • Wednesday, July 13: The Senate Committee on Finance Subcommittee on Health Care will hold a hearing titled “Alzheimer’s Disease: The Struggle for Families, a Looming Crisis for Medicare.”
  • Wednesday, July 13: The Senate Committee on the Judiciary Subcommittee on Crime and Terrorism will hold a hearing titled “Researching the Potential Medical Benefits and Risks of Marijuana.”
  • Wednesday, July 13: The Senate Committee on Foreign Relations Subcommittee on Western Hemisphere, Transnational Crime, Civilian Security, Democracy, Human Rights, and Global Women’s Issues will hold a hearing titled “Zika in the Western Hemisphere: Risks and Response.”
  • Thursday, July 14: The House Committee on Ways and Means Subcommittee on Social Security will hold a hearing titled “Modernizing Social Security’s Information Technology Infrastructure.”

Regulatory Activity

CMS Issues Proposed Rule to Medicare Physician Fee Schedule

On Thursday, July 7, 2016, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule that changes payment policies, payment rates, and quality provisions for services under the Medicare Physician Fee Schedule (PFS). CMS officials estimate the proposed changes would increase funding to primary care providers by $900 million in 2017. In addition, the CMS proposed rule includes updates to the Medicare Shared Saving Program; the release of pricing data from Medicare Advantage bids and medical loss ratio (MLR) reports from Medicare health and drug plans; the addition of several billing codes for telehealth services; and the expansion of the Medicare Diabetes Prevention Program model. Expansion of the Medicare Diabetes Prevention Program model is the second CMS Innovation Center model and the first preventive services model to be certified for expansion. The proposed rule will be published in the Federal Register on Friday, July 15, 2016, and comments must be submitted no later than 5 p.m. on Tuesday, September 6, 2016.

CMS Proposes OPPS and ASC System Changes

On Wednesday, July 6, 2016, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule to update the Medicare hospital outpatient prospective payment system (OPPS) and the Medicare ambulatory surgical center (ASC) payment system for calendar year 2017. CMS is also proposing a number of outpatient prospective payment policies to improve the quality of care Medicare patients receive. One of the key proposals is the implementation of Section 603, the Site Neutral Payments Provision. This proposal will lower doctor office pay rates to physician practices purchased by hospitals and turned into outpatient departments. In addition, the removal of the Pain Management dimension of the Hospital Consumer Assessment of Healthcare Providers and System (HCAHPS) has received praise from republican lawmakers on Capitol Hill. The proposed rule also includes policies to update and refine requirements for Hospital Outpatient Quality Reporting (OQR) Program and the ASC Quality Reporting (ASCQR) Program; updates tolerance thresholds for clinical outcomes for solid organ transplant programs; and changes the objectives and measures of the Medicare Electronic Health Record (EHR) Incentive Program. The proposed rule will be published in the Federal Register on Thursday, July 14, 2016, and comments must be submitted no later than 5 p.m. on Tuesday, September 6, 2016.

House Republicans Unveil Counterterrorism Legislation

Legislative Activity

House Republicans Unveil Counterterrorism Legislation

On Friday, July 1, House Majority Leader Kevin McCarthy (R-CA) introduced H.R. 5611, the Homeland Safety and Security Act, in response to the mass shooting at the Pulse nightclub in Orlando and other recent acts of terror around the world. The bill would amend the Homeland Security Act of 2002 to establish an Office for Partnerships to Prevent Terrorism (OPPT) within the US Department of Homeland Security (DHS) responsible for combating radical Islamist terrorism in the United States, as well as coordinating a grant program to assist community groups and organizations with counter-messaging campaigns that target terrorism.  The bill would also direct DHS to submit a comprehensive strategy for countering radical Islamist terrorism to Congress and the US Department of State to revoke passports of individuals who are a member of or affiliated with or who have aided, abetted, or given material support to terrorist organizations.

The bill would also authorize the US Department of Justice to notify federal, state, and local law enforcement agencies to delay the purchase of a firearm from suspected terrorists for 72 hours and ultimately deny the purchase if probable cause of risk is determined in relation to the purchase, a provision similar to one advanced by Senate Majority Whip John Cornyn (R-TX) to address gun control but that was defeated in the Senate in June.

The legislation comes as Republicans and Democrats in both chambers continue to clash over gun control legislation in response to the Orlando attack.  Despite initial speculation that the House would vote on H.R. 5611, the measure faces opposition from House Republicans and Democrats alike.  Conservatives have expressed concern over the perceived restriction of second amendment rights, and while Speaker of the House Paul Ryan (R-WI) has met privately with Reps. John Lewis (D-GA) and John Larson (D-CT), Democratic leaders in the push for gun control in the House, to discuss their party’s concerns, including allegations that the language is unenforceable and a “bait and switch” to address gun laws.  Speaker Ryan would not to commit a schedule for bringing up the bill, but in a recent press conference stated that “The last thing we’re going to do is rush something to the floor that we don’t have right.”

Senate Considers Immigration Measures

Democrats blocked consideration of two immigration enforcement bills on Wednesday, July 6:  S. 3100, the Stop Sanctuary Cities Act, sponsored by Sen. Pat Toomey (R-PA), and S. 2193, Kate’s Law, sponsored by Sen. Ted Cruz (R-TX). The bills – which Republicans sought to advance on the anniversary of the death of Kate Steinle, who police say died at the hands of an undocumented immigrant with a criminal record and who had been deported multiple times –  would withhold federal grant funding from designated “sanctuary jurisdictions” and increase penalties for immigrants detained for crossing the border multiple times, respectively.  President Obama has threatened to veto both measures, and they were opposed by numerous immigration and legal groups.

This Week’s Hearings:

  • On Monday, July 11, the House Homeland Security Subcommittee on Emergency Preparedness, Response, and Communications will hold a field hearing titled “A Prepared Community is a Resilient Community.”
  • On Tuesday, July 12, the House Judiciary Committee will hold a hearing titled “Oversight of the Department of Justice” with Attorney General Loretta Lynch.
  • On Wednesday, July 13, the House Homeland Security Subcommittees on Counterterrorism and on Intelligence will hold a two part hearing titled “Counterintelligence and Insider Threats: How Prepared is the Department of Homeland Security?”
  • On Thursday, July 14, the House Homeland Security Committee will hold a hearing titled “Worldwide Threats to the Homeland: ISIS and the New Wave of Terror.”
  • On Thursday, July 14, the Senate Judiciary Committee will hold an Executive Business Meeting to consider pending legislation and nominations.

President Obama Returns Early From an Overseas Trip and Heads to Dallas; Congress Works to Wrap Business Before Summer Recess and Will Hold Hearings on the Human Trafficking Report, Zika, Cyber Concerns, Iran, Syria, Cuba, Turkey, and Pakistan, Among Other Topics; TTIP Negotiators Meet This Week

President Barack Obama travelled to Warsaw, Poland, at the end of last week to attend the NATO Summit and meet with Polish government officials.  In joint remarks to the press after a U.S.-EU meeting on Friday, President Obama emphasizing a close cooperation with the EU, including through the ongoing transatlantic free trade agreement negotiations, while also briefly addressing the United Kingdom’s vote to depart the EU.  European Commission President Jean-Claude Juncker took a harder position on the UK’s referendum vote, while European Council President Donald Tusk remained more conciliatory.  President Obama travelled next to Spain before returning early to the United States.

From Poland, President Obama addressed two separate shootings last week by police forces against black citizens that resulted in the deaths of the two.  He further addressed tensions in the United States on Friday, after a late Thursday evening shooting incident in Dallas, Texas, that left five police officers dead and injured others, including two civilians.  The shooter told police that he “wanted to kill white people, especially white officers” in response to the recent, high-profile police-involved shootings.

Both chambers of Congress were in session after the Fourth of July holiday and will be in session this week.  The House voted Friday afternoon on a motion to proceed to conference with the Senate on the Fiscal Year (FY) 2017 National Defense Authorization Act (NDAA; S. 2943).  Meanwhile, the Senate failed to advance its FY 2017 defense spending measure on Thursday, setting the stage for an ever more likely Continuing Resolution to prevent a Government shutdown when FY 2016 concludes on 30 September.  Congress will recess for seven weeks on 15 July, returning to Washington in early September before adjourning again at the end of the month until after the 8 November elections.  Also last week, the United States added North Korea President Kim Jong Un and other North Korean officials to its list of Specially Designated Nationals.

NATO Summit – Obama’s Trip to Poland and Spain

President Obama participated in the NATO Summit last week, discussing NATO’s commitments to Eastern Europe, deterring Russian aggression, addressing the migrant crisis in Europe, and the Alliance’s commitments to Afghanistan.  While in Brussels, President Obama said:

“The United States, NATO, and the European Union are central pillars of the global order.  We complement each other, and together provide peace and stability in Europe, our neighborhood, and beyond.  Our combined strengths remains formidable, but still, we can work more closely together, and that is why we are here today.”

The White House released multiple fact sheets related to the NATO Summit:  (1) NATO Warsaw Summit; (2) U.S. Contributions to NATO Capabilities; (3) U.S. Assurance and Deterrence Efforts in Support of NATO Allies; (4) U.S. Contributions to Enhancing Allied Resilience; (5) U.S. and NATO Efforts in Support of NATO Partners, including Georgia, Ukraine, and Moldova; and (6) NATO’s Enduring Commitment to Afghanistan.

President Obama also met with President Andrzej Duda, affirming the commitment of the United States to the security of Poland.  The White House also released a fact sheet on the bilateral relationship.  In Spain over the weekend, President Obama met with Spanish government officials, including Prime Minister Mariano Rajoy (White House bilateral relationship fact sheet).  He cut a portion of his trip to Spain short in order to return to the United States and participate in a memorial service in Dallas on Tuesday for the fallen police officers.

  • On Wednesday, 13 July, the House Armed Services Subcommittee on Oversight and Investigations is scheduled to hold a hearing titled, “Oversight of the European Reassurance Initiative.”

North Korea – New U.S. Sanctions Announced

Last Wednesday, the Obama Administration announced sanctions designations targeting senior North Korean officials, including Kim Jong Un.  The U.S. Department of State issued a report identifying individuals and entities responsible or associated with serious human rights abuses or censorship in North Korea.  In tandem, the U.S. Department of the Treasury’s Office of Foreign Assets Control announced that eleven individuals and five entities have been sanctioned under Executive Orders 13722 and 13687.  Both agency actions were consistent with requirements set forth in the North Korea Sanctions and Policy Enhancement Act of 2016 (H.R. 757), passed by Congress in February.

NDAA – House Moves to Conference

Prior to adjourning Friday afternoon, the House voted on a motion to go to conference with the Senate on the FY 2017 National Defense Authorization Act (NDAA; S.2943).  House Members were also named to serve on the House-Senate conference committee.

Spending Measures Stall – CR Possible

Late last Thursday, Senate Democrats blocked a motion (50-44) to invoke cloture on a motion to proceed to the FY 2017 defense spending measure, falling short of the 60 votes required.  A Continuing Resolution (CR) will likely be needed to keep funding for the Defense Department and other U.S. Government agencies at current levels before the current spending authority expires on 30 September.  There is little time remaining on the congressional calendar, with lawmakers scheduled to leave on 15 July for a seven-week recess.

Members of the Freedom Caucus, a group of conservative Republicans in the House, are actively discussing a potential vote on a six-month CR next week that would fund the Government through March 2017 and effectively suspend any further congressional action on FY 2017 appropriations measures this year.  Such a move would essentially punt FY 2017 spending decisions to a new President and Congress.

Zika Funding – White House Urges Congress to Act

The White House called on Congress to authorize Zika funding ahead of their summer recess next week, citing possibly irreparable harm to pregnant women in the United States and their babies.  Participating in a White House-led teleconference on Thursday, Senator Bill Nelson (D-Florida) said that he has written to Senate Majority Leader Mitch McConnell (R-Kentucky), urging him to bring the bipartisan $1.1 billion bill that the Senate previously passed back to the floor for a vote as a standalone measure, without extraneous policy riders.  Republican Florida Senator Marco Rubio announced he will convene a Senate Foreign Relations Western Hemisphere and Global Women’s Issues Subcommittee hearing this week to discuss the Zika virus.

  • On Wednesday, 13 July, the Senate Foreign Relations Subcommittees on Western Hemisphere and Global Women’s Issues is scheduled to hold a hearing titled, “Zika in the Western Hemisphere: Risks and Response.”

2016 TIP Report Released

On 30 June, the U.S. Department of State released its annual Trafficking in Persons (TIP) Report.  The Report sustained Malaysia’s designation as a Tier 2 Watch List country, for a second consecutive year, while also elevating Thailand from Tier 3 to Tier 2 Watch List.

Congress passed a trade bill last year that contained a provision that would prevent Malaysia and other Tier 3-ranked countries from fast-tracked trade deals with the United States, including the TPP.  Last year, the State Department upgraded Malaysia from Tier 3, along with Cuba, a move that many criticized as politicizing the TIP Report.  Thailand, meanwhile, has expressed interest in possibly joining the TPP in the future.

  • On Tuesday, 12 July, the Senate Foreign Relations Committee is scheduled to hold a hearing titled, “Review of the 2016 Trafficking in Persons Report.”
  • On Tuesday, 12 July, the House Foreign Affairs Global Human Rights Subcommittee is scheduled to hold a hearing titled, “Accountability Over Politics: Scrutinizing the Trafficking in Persons Report.”

TTIP – Negotiators Meet This Week

Transatlantic Trade and Investment Partnership (TTIP) negotiators are expected to focus on regulatory cooperation during their next round of talks in Brussels this week.  U.S. negotiators are unlikely to move on the EU’s demands for more concessions on government procurement and services.  The EU is also expected to table proposals for eight out of nine sectors that both sides have decided are subjects for regulatory cooperation:  (1) chemicals, (2) cosmetics, (3) engineering, (4) medical devices, (5) pesticides, (6) pharmaceuticals, (7) textiles, and (8) vehicles.

TPP – Democratic Platform May Include Language Opposing the Agreement

Some Democratic National Committee delegates have reportedly sent letters to Platform Committee co-chairs Connecticut Governor Dannel Malloy and former Atlanta Mayor Shirley Franklin calling for stronger language opposing the Trans-Pacific Partnership to be included in the 2016 Democratic Party Platform.  The move came ahead of Friday and Saturday’s Democratic National Committee’s platform meeting in Orlando, which concluded with a vote on the draft platform that will be sent to the party convention for final approval later in July.

Privacy Shield – Final Approval Expected This Week

A European Commission committee of national data experts adopted the EU-U.S. data transfer agreement known as “Privacy Shield” last week, paving the way for final approval by EU Commissioners today.  Privacy Shield is intended to replace the nullified “Safe Harbor” agreement.  U.S. Secretary of Commerce Penny Pritzker will be in Brussels on Tuesday, where she anticipates participating in the formal signing ceremony for the agreement.

Congressional Hearings This Week

  • On Tuesday, 12 July, the House Foreign Affairs Committee is scheduled to hold a hearing titled, “Human Rights Under Siege Worldwide.”
  • On Tuesday, 12 July, the House Foreign Affairs Subcommittees on Asia and the Pacific is scheduled to hold a hearing titled, “Pakistan: Friend or Foe in the Fight Against Terrorism?”
  • On Tuesday, 12 July, the Senate Foreign Relations Subcommittee on Department and USAID Management, International Operations, and Bilateral International Development is scheduled to hold a hearing titled, “Public-Private Partnerships in Foreign Aid: Leveraging U.S. Assistance for Greater Impact and Sustainability.”
  • On Wednesday, 13 July, the House Armed Services Subcommittee on Tactical Air and Land Forces is scheduled to hold a hearing titled, “Air Dominance and the Critical Role of Fifth Generation Fighters.”
  • On Wednesday, 13 July, the House Foreign Affairs Subcommittee on Europe, Eurasia, and Emerging Threats is scheduled to hold a hearing titled, “Turkey’s Democratic Decline.”
  • On Wednesday, 13 July, the Senate Foreign Relations Subcommittee on East Asia and the Pacific is scheduled to hold a hearing titled, “U.S. Policy Options in the South China Sea.”
  • On Wednesday, 13 July, the House Ways & Means Trade Subcommittee is scheduled to hold a hearing titled, “Hearing on Expanding U.S. Digital Trade and Eliminating Barriers to U.S. Digital Exports.”
  • On Wednesday, 13 July, the House Homeland Security Subcommittee on Counterterrorism and Intelligence Subcommittee is scheduled to hold a two part hearing, with the first session open, and the second session closed to the public. The hearing is titled, “Counterintelligence and Insider Threats: How Prepared is the Department of Homeland Security?”
  • On Wednesday, 13 July, the House Foreign Affairs Committee is scheduled to hold a hearing titled, “Countering the Virtual Caliphate: The State Department’s Performance.”
  • On Wednesday, 13 July, the House Oversight & Government Reform Committee is scheduled to hold a hearing titled, “Digital Acts of War: Evolving the Cybersecurity Conversation.”
  • On Wednesday, 13 July, the House Foreign Affairs Global Human Rights Subcommittee is scheduled to hold a hearing titled, “The Castro Regime’s Ongoing Violations of Civil and Political Rights.”
  • On Thursday, 14 July, the Senate Foreign Relations Committee is scheduled to hold a hearing titled, “The Iran Nuclear Agreement: One Year Later.”
  • On Thursday, 14 July, the House Foreign Affairs Subcommittee on Middle East and North Africa is scheduled to hold a hearing titled, “U.S. Humanitarian Assistance to Syria: Minimizing Risks and Improving Oversight.”
  • On Thursday, 14 July, the House Foreign Affairs Subcommittee on Western Hemisphere is scheduled to hold a hearing titled, “The Strategic Importance of Building a Stronger U.S.-Caribbean Partnership.”
  • On Thursday, 14 July, the Senate Banking Committee is scheduled to hold a hearing titled, “Evaluating the Financial Risks of China.”
  • On Thursday, 14 July, the House Judiciary Subcommittee on the Constitution and Civil Justice is scheduled to hold a hearing on S. 2040, the Justice Against Sponsors of Terrorism Act.
  • On Thursday, 14 July, the House Armed Services Subcommittee on Strategic Forces is scheduled to hold a hearing titled, “President Obama’s Nuclear Deterrent Modernization Plans and Budgets: The Military Requirements.”
  • On Thursday, 14 July, the House Foreign Affairs Subcommittee on Global Human Rights, and International Organizations is scheduled to hold a hearing titled, “Hope Deferred: Securing Enforcement of the Goldman Act to Return Abducted American Children.”

Looking Ahead

Washington is expected to focus on the following upcoming events:

  • 11-15 July: TTIP Negotiations in Brussels
  • 18 July – 5 September: Congressional Summer Recess
  • 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
  • By 15 October: ITC to publish a Federal Register notice related to MTB petitions
  • 19-20 November: Asia-Pacific Economic Cooperation (APEC) Summit in Peru

Tax Reform Efforts Continue; Section 385, BEPS Implementation Dominate Regulatory Agenda

Legislative Activity

The Long March to Tax Reform Continues

On June 24, House Ways and Means Committee Chairman Kevin Brady (R-TX) released the House GOP’s Task Force on Tax Reform’s long-awaited tax reform “Blueprint,” which lays out the GOP’s tax policy agenda for 2017. Specifically, and as we discuss in greater detail in our alert, the proposal focuses on: (1) individual taxation; (2) corporate taxation; (3) international taxation; and (4) the need to reform the Internal Revenue Service (IRS).

In addition to the House’s Blueprint, Senate Finance Committee Chairman Orrin Hatch (R-UT) continues to push forward with his proposal on corporate integration, aimed at eliminating the double taxation on corporate income through a dividends-paid deduction. While he had previously indicated the proposal would be released sometime in June, the scoring of the proposal has taken longer than expected, partially due to determining the potential impact on retirement plans and tax exempt entities. Despite the delays, the proposal will nevertheless likely be released sometime this summer.

Senate Finance Committee Democrats – who may be in the majority next Congress – are also continuing with efforts to present their own tax reform agenda expected before year’s end. According to Senate Finance Committee Ranking Member Ron Wyden (D-OR) and Todd Metcalf, Chief Democratic Tax Counsel, the Democrats plan will contain a package of anti-inversion proposals, as well as more comprehensive tax reform measures.

Unfinished Business: Energy Tax Extenders Remain in Limbo

While continuing to push on with forward-looking tax reform measures, there remains unfinished business that several lawmakers would like to see resolved before the end of the year: an extension of the energy tax extenders that were left out of last December’s fiscal agreement.  Some Members have discussed using a miscellaneous tax bill to address the soon-to-expire extenders. However, given current dynamics, it is possible that only “must-pass” legislation will be addressed before the end of the year (e.g., the clean Federal Aviation Administration (FAA) reauthorization bill), which Congress is expected to vote on this week. Both Senators Wyden and Chuck Schumer (D-NY) had previously indicated a preference to use the FAA reauthorization bill as the vehicle to extend the energy tax provisions while, on the House side, Chairman Brady appears to favor waiting until next Congress to address any remaining tax extenders. With the FAA reauthorization bill likely off the table as a vehicle, it is uncertain.

This Week’s Hearings:

  • July 13: The House Ways and Means Committee: Expanding U.S. Digital Trade and Eliminating Barriers to U.S. Digital Exports

Regulatory Activity

Treasury Pressing on with Section 385 Regulations

Despite best efforts by lawmakers and industry to obtain a delay in the close of the comment period, the finalization and implementation of the proposed debt-equity regulations, or both, the Treasury Department is moving forward. Instead of delaying the regulations, it appears that Treasury is focused more on making changes to specific areas of the rulemaking that may have a broader, more devastating impact than intended (e.g., cash pooling). The comment period for the proposed regulations closed on time, this past Thursday, July 7, and a hearing on the regulations is slated to be held this Thursday, July 14.

In leading up to the close of the comment period and in advance of this week’s hearing, multiple business groups have submitted comments on the proposed regulations, primarily focusing on the proposal’s many unintended consequences, such as the potential impact on ordinary cash pooling and the detrimental effect the rules may have on foreign investment in the U.S.. From the Hill’s perspective, all Republican House Ways and Means Committee Members and seven Senate Finance Committee Republicans also reached out to Treasury, requesting the complete withdrawal, or, at a minimum, a delay in the implementation of the proposed regulations. Democrats, however, remain split on the issues. While eleven House Ways and Means Committee Democrats asked the Treasury Department to consider “whether exceptions or special rules, including transition rules, are appropriate” for the proposed Section 385 regulations, ten other House Democrats wrote to Treasury urging it “not to yield to the intense lobbying against these regulations, directed at both Treasury and the Congress, by multinational business and its trade associations.”

For now, Treasury is proceeding on schedule, though it remains to be seen whether it will extend its self-imposed pre-Labor Day deadline for finalizing the regulations. Such a deadline will require a quick turn-around upon reviewing the submitted comments and feedback received at the hearing.

European Commission Releases New Tax Transparency Initiatives

As part of the European Union’s (EU) ongoing efforts to crack down on tax evasion and avoidance, the European Commission (EC) has published two documents outlining additional forthcoming action on the matter.

First, largely a result of the Panama Papers controversy, the EC published a Communication addressing the need for additional measures to enhance transparency, help fight against tax evasion and avoidance, and result in “a stronger and more coordinated EU stance against tax abuse [that is] aligned to the international agenda.”  As such, the Communication indicates that the Commission will focus on the following areas in the coming months: (1) harnessing the link between anti money laundering and tax transparency rules; (2) improving information exchange on beneficial ownership; (3) increasing oversight of enablers and promoters of aggressive tax planning; (4) promoting higher tax good governance standards worldwide; and (5) improving the protection of whistle-blowers.

Second, the EC published a Directive that would amend anti-money laundering laws to better counter the financing of terrorism and ensure increased transparency of financial transactions and of corporate entities under the preventive legal framework in place in the EU, namely Directive (EU) 2015/849 (“4AMLD”).  Specifically, the directive would amender 4AMLD by: (1) designating virtual currency exchange platforms as obliged entities; (2) setting lower maximum transaction limits for certain pre-paid instruments; (3) enabling financial intelligence units (FIUs) to request information on money laundering and terrorist financing from any obliged entity; (4) enabling FIUs and competent authorities to identify holders of bank and payment accounts; (5) harmonizing the EU approach towards high-risk third countries; (6) improving access to beneficial ownership information; and (7) clarifying a number of existing provisions.

Relatedly, on July 11, the EU Economic and Financial Affairs Ministers are expected to meet in order to adopt a separate directive to tackle tax avoidance following an agreement the Ministers reached on the proposal last month.

BEPS Implementation Continues in the U.S., Across the Globe

On June 30, the Internal Revenue Service (IRS) published a final rulemaking, which requires annual country-by-country (CbyCR) reporting by U.S. companies that are the ultimate parent entity of a multinational enterprise group with annual revenue for the preceding accounting period of $850 million or more. The CbyCR reporting periods in the U.S. begins with the first taxable year after June 30, 2016, however, given that foreign subsidiaries of U.S. multinational corporations could be subject to CbyCR reporting in foreign jurisdictions for the 2016 tax year, the IRS plans to accept voluntary CbyCR reports filed for 2016 and exchange them with foreign jurisdictions on behalf of such corporations. From a legislative perspective, Congress continues to examine domestic CbyCR implementation, with Representative Charles Boustany (R-LA) leading the charge. His legislation (H.R. 4297, BEPS Act) to delay U.S. implementation of CbyCR reporting, however, will require some revisions in light of the IRS’ finalized rules.

More broadly, Action 15 of the Base Erosion Profit Shifting (BEPS) Project calls for the development of a multilateral instrument (MLI) to modify existing tax treaties between participating countries. The Organisation for Economic Co-operation and Development (OECD) recently released a discussion draft of the multilateral instrument (MLI) in order to elicit input from the public on: (1) technical issues of implementation; and (2) issues related to the development of a Mutual Agreement Procedure (MAP) arbitration provision. Comments on such issues were due by June 30, and a hearing on the MLI was held on July 7. An Ad Hoc Group began its work developing the MLI back in May 2015 and aims to conclude its work and open the MLI for signature by December 31, 2016.

FCC’s Agenda for July 14 Meeting Includes Spectrum Frontiers and Technology Transitions Items

Legislative Activity

House Approves FY 2017 Appropriations Bill Decreasing FCC’s Budget

On July 7, the U.S. House of Representatives (House) passed H.R.5485, the Financial Services and General Government Appropriations Bill, 2017 containing appropriations for fiscal year (FY) 2017. The $21.7 billion funding measure contains appropriations for various federal agencies for the fiscal year ending September 30, 2017, including appropriations for the Federal Communications Commission (FCC). Specifically, the bill provides an appropriation of $314,844,000 for the FCC, representing a cut of approximately $69 million below FY 2016 enacted levels and $43 million below the FCC’s requested amount for FY 2017.

The bill contains a number of restrictions and conditions on the FCC’s use of the appropriated funds. For example, the bill prevents the FCC from using its appropriation to “implement, administer, or enforce” the FCC’s Open Internet Rules until all litigation pertaining to the rules has been resolved. The bill also prevents the FCC from taking action in its set-top box proceeding until 180 days after the completion of a study that “evaluates the potential costs and benefits of the proposed rule and the potential costs and benefits of other market-based solutions.” According to the Committee Report, the House Committee on Appropriations (House Appropriations Committee) believes that the FCC’s set-top box proposal “falls short, especially with regard to privacy and copyright concerns.” Finally, the bill requires the FCC to submit quarterly reports to the House Appropriations Committee, the Senate Committee on Appropriations, the House Committee on Energy and Commerce (House Commerce Committee), and the Senate Committee on Commerce, Science, & Transportation (Senate Commerce Committee) informing the committees of the status of the FCC’s efforts in tracking and collecting monetary penalties assessed by the FCC through its enforcement process within 90 days after enactment of the bill.

Senate Commerce Committee Passes Network Resiliency Bill

On June 29, the Senate Commerce Committee passed S.2997, the Securing Access to Networks in Disasters (SANDy) Act of 2016 by voice vote. The bill, previously discussed here, was introduced on May 26 by Sen. Maria Cantwell (D-WA). The legislation would require the FCC to commence proceedings related to the resiliency of telecommunications networks during times of emergency. The bill also expresses a sense of congress that “[s]evere weather and emergencies can have devastating effects on communities” and directs the Government Accountability Office to conduct a study on how federal agencies can “better ensure critical telecommunications networks remain operational during times of emergency.” The bill now goes to the full Senate for consideration.

This Week’s Hearings:

  • Tuesday, July 12: The Communications and Technology Subcommittee of the House Commerce Committee will hold a hearing entitled “Oversight of the Federal Communications Commission.” All five FCC commissioners will testify at the hearing.
  • Tuesday, July 12: The Senate Commerce Committee will hold a hearing entitled “How Will the FCC’s Proposed Privacy Regulations Affect Consumers and Competition?” Witnesses at the hearing will include Dean C. Garfield, President and CEO of the Information Technology Industry Council, The Honorable Jon Leibowitz, Partner at Davis Polk & Wardwell and the Co-Chair of the 21st Century Privacy Coalition, Matthew M. Polka, President and CEO of the American Cable Association, and Professor Peter Swire, Huang Professor of Law and Ethics at Georgia Institute of Technology’s Scheller College of Business.

Regulatory Activity

FCC Announces Final Agenda for July 14 Open Meeting

The FCC has announced that the following items are on the agenda for the agency’s July 14 Open Meeting:

  • Use of Spectrum Bands Above 24 GHz For Mobile Radio Services et al.: The FCC will consider a Report and Order and Further Notice of Proposed Rulemaking that would “make spectrum in bands above 24 GHz available for flexible use wireless services, including for next-generation, or 5G, networks and technologies.”
  • Technology Transitions et al.: The FCC will consider a Declaratory Ruling, Second Report and Order, and Order on Reconsideration that “adopts a framework to guide transitions to next-generation communications technologies while protecting the interests of consumers and competition.”

On June 23, FCC Chairman Tom Wheeler posted to the FCC Blog discussing the items above. The FCC’s Open Meeting will commence on July 14 at 10:30 a.m. in the Commission Meeting Room of the FCC’s headquarters at 445 12th Street, S.W., Washington, D.C., and will be streamed live at fcc.gov/live.

FCC Exempts Federal Government and Federal Contractors from TCPA Calling Restrictions

On July 5, the FCC issued a Declaratory Ruling clarifying that “the TCPA does not apply to calls made by or on behalf of the federal government in the conduct of official government business, except when a call made by a contractor does not comply with the government’s instructions.” In pertinent part, the TCPA prohibits any “person” from “mak[ing] any call . . . using any automatic telephone dialing system or an artificial or prerecorded voice . . . to any telephone number assigned to a . . . cellular telephone service” unless the caller has the “prior express consent of the called party,” with certain exceptions. In the Declaratory Ruling, the FCC determined that the “federal government or agents acting within the scope of their agency under common-law principles of agency” are not “person[s]” for purposes of the TCPA’s calling restrictions. The FCC explained that a federal contractor may invoke this TCPA exemption “when the contractor has been validly authorized to act as the government’s agent and is acting within the scope of its contractual relationship with the government, and the government has delegated to the contractor its prerogative to make autodialed or prerecorded- or artificial-voice calls to communicate with its citizens.”

FCC Commissioner Pai Sends Letters to Four State Utility Commissions Requesting Assistance to Combat Waste, Fraud, Abuse in Lifeline Program

On July 5, FCC Commissioner Ajit Pai sent letters to the President of the California Public Utilities Commission, Chair of the Public Utility Commission of Oregon, Chairman of the Public Utility Commission of Texas, and Commissioner of the Vermont Public Service Department (collectively, “State Utility Commissions”) seeking their “aid in combating the waste, fraud, and abuse that has riddled the Universal Service Fund’s Lifeline program since wireless resellers began participating in this program.” Lifeline is a government subsidy program overseen by the FCC that provides discounted phone service to low-income consumers. Commissioner Pai previously raised concerns about “waste, fraud, and abuse” in the Lifeline program and requested information from Chris Henderson, CEO of the Universal Service Administrative Company (USAC) – which administers the Lifeline program – in letters sent April 18, May 31, and June 8.

Commissioner Pai’s letters to the State Utility Commissions raise particular concern about potential abuse from “duplicate subscribers (that is, individuals getting multiple subsidies).” Commissioner Pai explains that although there is a “one-per household” rule for Lifeline subsidies, there is also an “override” under which a “duplicate determination” can be overridden by an “applicant” or, potentially, an “unscrupulous wireless reseller” with “no USAC oversight.” As Commissioner Pai explains, the FCC in April “proposed a $51 million forfeiture against Total Call Mobile” after the FCC “learned how Total Call Mobile[] . . . repeatedly registered duplicate subscribers” and that “at one point, 99.8% of Total Call Mobile’s new subscribers were the result of overrides.” Commissioner Pai also notes that “USAC has reported that at least 16 other major Lifeline wireless resellers may have employed the same tactics as Total Call Mobile.” Commissioner Pai states that the purpose of his letter is to “alert [the State Utility Commissions] to some of the abuses [the FCC] has seen” in the Lifeline program because California, Oregon, Texas, and Vermont are the four states that “run their own Lifeline accountability databases,” according to the letters. Commissioner Pai also requested certain information from the State Utility Commissions, including information about their override and audit procedures relating to the Lifeline program.

FCC Enters Consent Decree with GCI Related to Wireless 911 Outages

On July 6, the FCC’s Enforcement Bureau (Bureau) entered into a Consent Decree with General Communication, Inc. (GCI) to resolve its investigation into whether GCI, “in connection with five separate 911 outages in its wireless network between August 2008 and April 2016, failed to deploy a 911 system with sufficient safeguards to ensure the completion of 911 calls, failed to timely notify emergency call centers in relation to three of these outages, and failed to timely submit outage reports to the Commission in relation to four of these outages.” During its investigation, the Bureau determined that the service outages actually prevented significant numbers of wireless customers from reaching first responders when making 911 calls, and that the outages could have been minimized or avoided had GCI simply implemented appropriate safeguards. As part of the settlement, GCI admits that it violated the Commission’s 911 service reliability and outage notification and reporting rules, and agrees to pay a $2.4M penalty, in addition to implementing a compliance plan. The Bureau notes that in determining the penalty, it took into account the fact that “four of the five outages took place in remote locations in Alaska.

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