Former U.S. Senator, Cabinet Secretary and other members of bipartisan group outline changes in policy, regulatory enforcement and legislation coming out of Nov. 2 elections, and their effects on U.S. business
WASHINGTON, DC (November 2, 2010) – The voters are doing the talking now and while the votes are still being counted, a new political landscape beckons in the U.S. For businesses of all sizes, the results of this week’s mid-term elections promise potential game-changing revisions in how the federal government will shape regulations, lawmaking and enforcement standards.
As it has in past election seasons, Venable LLP has gathered a group of senior Washington insiders to offer quick post-vote commentary on the results. Venable’s election watchers include a former U.S. Senator and Secretary of Transportation, as well as former SEC enforcement attorneys, bank regulators, policymakers and senior legislative staffers from both sides of the aisle. Following some of the most contentious House, Senate and gubernatorial races in years, Venable’s Election Watch Team is now focused on how the shift in power will impact the U.S. business landscape – whether by industry (such as financial services, transportation, energy, telecom) or in key areas of policy and regulation, such as tax, privacy, environmental reform, SEC enforcement, international trade, even congressional investigations.
Click here to visit Venable's Election Center and get the latest results from all of the races.
The battle for Senate control: how much difference does winning make?
Former three-term U.S. Senator Birch Bayh (D-Indiana) notes that even a smaller-than-expected increase in Republican members “will make it almost impossible for Democrats to pass controversial measures through the Senate.”
But a Republican majority would be similarly stymied. The Republicans would likely be confronted by Democrats using the same tactics that Republicans have been using to stall or block Democratic legislation. “Either way,” Bayh says, “the future does not look bright for an aggressive legislative program to pass the Senate. What we desperately need is a return to some semblance of nonpartisanship that would allow everyone – particularly the country – to benefit. ”
Financial services: still on front burner, with the “mortgage finance system hanging in the balance”
William Donovan, a Venable partner who spent more than 30 years representing financial services providers before Congress, notes that “banking issues are going to be front and center, no matter who controls Congress. Revisiting portions of Dodd-Frank, retooling or possible wind-down of Fannie Mae and Freddie Mac, FHA reforms, reassessing the purpose of the Community Reinvestment Act – regardless of who's chairing the Senate Banking and the House Financial Services Committees, you can count on these issues being the subject of lively hearings and legislative action.”
Donovan says one of the hottest-button issues to command attention is addressing the government-sponsored enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Banks. “What to do with these government-sponsored institutions going forward will be atop the agenda when Congress convenes in January,” Donovan notes. “Privatization, nationalization, wholesale dismantling and all other conceivable options will be on the table, and the stakes will be high, with the nation’s mortgage finance system hanging in the balance.”
Donovan expects significant attention to be paid to the FHA. “During the mortgage meltdown, the FHA was catapulted into being the single largest insurer of residential mortgage loans in the country,” he says. “Congress is going to look at the FHA closely – perhaps even redefining its mission – and the strength and sustainability of its programs will be the subject of extensive hearings and legislation.”
Should the polls going into the final week of the election prove true, the leadership of the House Financial Services Committee will change come January, with Alabama Republican Spencer Bachus expected to assume the chairmanship of the Committee. In the unlikely event that the polls prove wrong and the Democrats retain control of the House, look for current Chairman Barney Frank (D-MA) to wield the gavel for the next two years.
The new Senate makeup could also play a role in determining who fills vacancies at several key financial services regulatory agencies, including the Federal Reserve, Comptroller of the Currency, National Credit Union Association, and especially the position of Director of the new Consumer Financial Protection Bureau. While Chairman Dodd was skeptical of his ability to muster the votes to approve the person most frequently mentioned to fill the post, Harvard professor Elizabeth Warren, that question has been put off for now. Warren, at least through mid-2011, will serve as a special adviser to the president and Treasury secretary and will plan the launch of the new bureau, but she does not appear to be a candidate to head the bureau officially. That could still change, however.
“With the Democrats' advantage expected to be reduced from the current nine-seat cushion, if not eliminated entirely, prospects for winning Senate confirmation for any candidate will be more complicated,” Donovan said. “So, it's possible that the Administration could follow a route other than seeking the 'advice and consent' of the Senate to fill the position.”
Donovan points out that the new Congress will likely take up other banking-related issues, including reauthorization of the National Flood Insurance Program and potentially a serious reassessment of the purpose of the Community Reinvestment Act.
In sum, Donovan said, “look for new leadership of the Senate Banking and, if the polls prove true, the House Financial Services Committee, a major focus on GSE reform, a revisiting of selected elements of the Dodd-Frank Act, a close monitoring of the CFPB and scores of oversight hearings on studies and reports mandated by the financial reform legislation – and that’s just for starters.”
Congressional investigations: Obama administration can expect “aggressive oversight”
Venable's Raymond V. Shepherd III, former Staff Director and Chief Counsel of the Senate Permanent Subcommittee on Investigations, thinks more active oversight and congressional investigations are in store, not the opposite: “You can expect aggressive oversight – the Administration will have its hands full placating a Republican Congress that, without the gavel, has been unable to conduct substantive oversight of the Obama administration.”
Yet Shepherd, who also served as oversight counsel to the House Energy & Commerce Committee, believes that Republicans will not be reckless with their new powers. “Republicans have learned from past mistakes and will not be handing out subpoenas like candy on Halloween. Instead, look for Congress to conduct intensive, fact-based oversight investigations designed to highlight policy differences with the Obama administration.”
Additionally, he continued, “without Chairmen Waxman and Towns investigating company misconduct, Senators Harkin, Rockefeller and Levin will fill the investigative void and keep the banks, insurance companies and the pharmaceutical industry busy.”
Tax: stymied by 800-pound deficit & debt gorillas
Tax policy will be at the forefront of issues facing the next Congress and the Administration – not to mention the lame duck session, according to Venable partner Sam Olchyk, who spent eight years as Tax Counsel to the Senate Finance Committee and the Joint Committee on Taxation. However, he notes, “the twin 800-pound gorillas in the room – that is, the budget deficit and the national debt – will make any changes modest in scope and short-term in duration.”
“As the 2012 election season begins on November 3rd, Republicans and Democrats, as well as President Obama, will stake out sharply differing positions on tax policy,” Olchyk said. “But barring some quick and significant economic turnaround, the deficit and national debt will severely hamstring the new Congress and the Administration's tax policy agenda.”
Transportation: proceed with caution, hurdles to improving surface transportation
Any party rebalancing in Congress is unlikely to change the dynamic on passage of a surface transportation reauthorization bill, notes Venable partner and former Secretary of Transportation James Burnley. As he explains, the primary impediment to action is that fuel taxes and other taxes deposited in the Highway Trust Fund are insufficient to cover current programs, much less fund bigger expenditures. “The Obama Administration is not interested in increasing fuel taxes, and most Republicans will also be opposed,” Burnley said. “I expect repeated short term extensions of the old bill until after the 2012 election, at least.”
Cap & Trade….still dead
In another key area for the transportation industry – cap and trade legislation – Burnley believes that increased Republican strength will significantly impact proposals to reduce greenhouse gases. Says Burnley, “I cannot envision either house in the next Congress enacting cap and trade legislation that regulates transportation.”
Energy: political will to address comprehensive energy legislation and climate change still lacking
Even if energy and climate change remain top-of-mind issues during the next session of Congress, “the real question is whether the Administration and lawmakers have the political will to address these issues on a comprehensive basis. If the past is any guide, the answer is no,” predicts Venable energy partner Richard Powers, Jr.
“The Administration has not proposed comprehensive energy or climate legislation. Rather, it has waited on Congress and pushed energy and climate policy through regulatory actions at various agencies, including the EPA, DOE and DOI, ensuring that the courts will continue to play an active role in these issues,” he adds.
Powers is blunt on legislative initiatives. “Congressional efforts on climate change have gone nowhere and energy legislation is scattered among various committees, with no real discernable overall plan,” he says. “With the upcoming shifts in both the House and the Senate, some key committee changes will be made regardless of who takes control. Combined with the huge budget deficits and the poor state of the economy, this means that it will be difficult to enact comprehensive energy or climate legislation.”
Powers also describes the expectation gap that is hampering energy reform. “We cannot forget that no one has explained to the American people why we cannot have access to cheap energy – it is our right, is it not?” he asks.
“Since the 1973 Oil Embargo, Presidents and Congress have responded to energy crisis after crisis with heated rhetoric and added legislation that has run the gamut from the command-and-control to the free market approach.”
“While it sounds good to say that we need to transition to a clean energy economy, we need to specifically identify what that means, what it will cost, and how we get there in a transparent, rational manner,” Powers adds. “Absent a comprehensive, transparent approach, we run the substantial risk that there will be a hodgepodge of bills passed providing short-term and even contradictory changes or benefits that are directed to certain industry segments or companies, but that will put us no closer to achieving the type of comprehensive energy or climate policy we need in this country.”
“The Congress and the Administration should be careful not to take actions which will harm our energy security, inflict further harm to our economy and undermine good paying American jobs,” he said. “This means recognizing our own resources such as natural gas, which can displace imported oil and reduce carbon emissions and trade deficits. It takes time and capital to produce hydrocarbons, and we should take advantage of the technological innovations and capital investments that have taken place in the last few years. We need to use all our resources and innovation to bridge our way to the future.”
Telecommunications: broadband reclassification and net neutrality under the gun
Venable's William Nordwind, former Counsel and Policy Coordinator for the House Energy and Commerce Subcommittee on Telecommunications and the Internet, notes that “to put a check on any attempt by the FCC to classify broadband as a Title II service, I anticipate significant oversight of the FCC by Congress. If the FCC moves forward nonetheless with an attempt at broadband reclassification, this would provide further impetus for Congress to move legislation statutorily prescribing the FCC's authority in this regard and to use the annual appropriations process to impose funds limitations on the agency.”
Venable Telecommunications Group Chair Frederick Joyce, whose experience in the industry goes back to the first cellular radiotelephone networks in the U.S., notes that a Republican majority in either chamber likely will end the current stalemate over net neutrality legislation. “There's a perception among many Republicans that Net Neutrality legislation is a ‘solution in search of a problem,’” Joyce says. “Privacy, on the other hand, tends to cut across party lines.”
Joyce expects Congress to try to auction off more radio spectrum for commercial uses, which will raise millions of dollars for the federal government's general accounts. In addition, user-funded programs like the Universal Service Fund may be expanded to encompass additional legislative goals, thereby subsidizing federal programs without having the appearance of raising taxes.
Joyce also believes that there may be some momentum next year to look at bolstering consumer privacy laws either on the basis of existing telecom statutes or through updating electronic privacy laws. “Times of economic difficulty and calls for fiscal restraint in the past have had an interesting impact on the telecom industry,” he notes.
Privacy and data security: stage set for new legislation
Venable partner Stuart Ingis, co-author of Privacy Protection in the U.S., notes that privacy issues have been working their way through this Congress. “The Commerce Committees have been holding hearings and introducing legislation that would have broad implications for the collection and transfer of consumer data online and offline,” Ingis says. In addition, he notes that the Judiciary, Banking and Commerce Committees have also been active on data security legislation and have introduced bills.
“It's unlikely that we'll see any new legislation before the end of this session,” Ingis adds, “but it's apparent that the stage is being set to address these issues in the 112th Congress, where we expect to see bills introduced early.”
Earmarks: reform, not eliminate; new meaning to “lame duck” session
Earmark reform has been a major talking point this year, but don't expect earmarking to be eliminated, says Venable partner Gregory Gill, who served for five years as Legislative Director for then-House Majority Whip Steny Hoyer (D-Maryland).
“Some in Congress would like to see earmarking eliminated completely, but the most you're likely to see are additional reforms to the earmarking process,” Gill, who also served as associate staff to the House Appropriations Committee, explains. “For example, Jerry Lewis (R-CA), the presumptive new chairman of the House Appropriations Committee, has called for an extension of the ban on earmarks--but I doubt that the Senate will go along with it.”
“Both sides of this debate have strong champions who have no interest in giving in to their opponents,” Gill says. “At the same time, a coalition of lobbyists and public interest advocates are promoting additional reforms that deserve serious consideration.”
As for the upcoming session, Gill says not to expect much substantive legislation – or rather, expect it to live up to its lame-duck name: “That is, we may truly be watching a ‘lame’ session where Congress simply ‘ducks’ many issues," he jokes.
Congressional operations: quiet takeover
Should the GOP win the House gavels for the next congressional session, Venable's Rob Smith expects Speaker-elect John A. Boehner (R-Ohio) and his team to adopt a measured “act like you've been here before” mindset with respect to governing the House.
“Boehner may have been the only one around for the GOP takeover in 1994, but Republicans will understand that if they do win, it's because the electorate is not happy with the ‘change’ that came to Washington two years ago, rather than because Republicans are now a great brand. They have a ton of potential, but also a lot to prove,” Smith said.
Smith believes that fiscal restraint and true oversight will rule the day. “I don't think we'll see a mad dash to undue all of the legislation the Democrats have passed during the last two years,” he says.
The likely swelling of Republican ranks in Congress will impact the Democratic leadership in both houses as well, notes Greg Gill.
“Unless the tsunami that is approaching the House turns into a spring shower there will be significant finger pointing and scapegoating in the House, which will result in changes in the Democratic leadership,” said Gill. “And if Senate majority leader Harry Reid (D-Nevada) can't hold off his opponent in Nevada, there will be similar Democratic leadership fights regardless of which party controls the Senate.”
Committee Assignments: major transformations ahead
According to Venable Senior Legislative Advisor Powell Moore, who has over four decades of experience working on Capitol Hill and in the Executive Branch, the mid-terms present an opportunity for a major transformation on the Republican side of the so-called Super-A committees in the Senate.
“Appropriations and Finance are the two most coveted committees because they deal with money,” says Moore, who served on the White House Legislative Affairs team under three presidents. “With seven Republican vacancies on the Appropriations Committee and two on the Finance Committee, expect a high-stakes game of musical chairs in the Republican Conference as senators jostle for positions on these prestigious committees.”
A shake-up among the Super-A committees could have ramifications for social security, health care and trade, where Finance has jurisdiction, notes Moore, who came to the Hill to work with Senator Richard Russell (D-Georgia) in 1966 and was Chief of Staff for former U.S. Senator Fred Thompson (R-Tennessee). Moore explains that because senators may serve on only one Super-A committee, “a chain reaction will develop with particular implications for the Republican makeup of the Armed Services and Foreign Affairs committees as well.”
International trade: full speed ahead, no matter which party is on top
Given the critical relationship between international trade and domestic economic policy, Venable partner Ashley Craig expects trade and U.S. export control reform to remain key issues regardless of who controls the House and/or Senate.
“Many government reforms become stalled in the doldrums of Congress, so it's notable that the President’s ‘Export Control Reform Initiative’ has moved forward so quickly,” notes Craig. “Since Secretary of Defense Robert Gates first discussed the Obama administration’s interagency review of U.S. export controls earlier this year and called for fundamental reform of the current Cold War-era system, many new regulations and Executive Orders have been, and I expect, will continue to be enacted.” He adds that these reforms have already affected export controls for several important U.S. industries, such as those dealing in encryption technology and military hardware, items which carried overly restrictive controls under prior regulations.
There are signs that controls of satellites and related components may be in the queue, Craig notes. U.S. export control authority, which is spread across a handful of agency jurisdictions, is expected to be streamlined under this initiative, he adds. However, most of the reforms to date have been those that have not required congressional approval.
Craig also expects there to be some movement on various trade agreements, especially if the Republicans capture the House. “Over the past two years, the Obama White House has stayed clear of trade treaties due to political and philosophical concerns. A GOP-lead House may provide the needed boast to restart consideration of various agreements with our trade partners.”
Another trade topic noted by Craig is whether to further regulate the international shipping industry with passage of the Shipping Act of 2010 (H.R. 6167), introduced by Representatives Oberstar and Cummings with a week remaining before Congress recessed for the mid-term elections. “The new Shipping Act would fundamentally alter the U.S. regulatory framework governing international liner shipping, by substantially restricting the almost century-old ocean carrier antitrust immunity, and by providing expanded oversight authority to the Federal Maritime Commission,” says Craig. “The Oberstar/Cummings bill holds the potential to transform the U.S. international ocean transportation industry, along with the economic, antitrust and trade landscapes – it is expected to be widely debated among industry and regulators.”
SEC: enhanced enforcement thanks to Dodd-Frank
Expect a continued focus on SEC enforcement, according to Venable partners Nancy Grunberg and Treazure Johnson, both of whom served as senior-level officials in the SEC’s Division of Enforcement. “As an independent executive agency, the SEC is not as affected as other federal agencies by changes in the governing party. Irrespective of which party has control of Congress, enforcement of the securities laws will likely remain a priority,” they say. “Wall Street continues to be perceived as the bad guy in the financial meltdown and, even if Republicans regain a majority, the meltdown still happened on their watch.”
Furthermore, the recently passed Dodd-Frank legislation contains a number of provisions that will make enforcement easier, and they are not the sections of the Act that have engendered controversy. Grunberg and Johnson note that Dodd-Frank contains a key whistleblower provision that provides powerful monetary incentives for individuals who have knowledge of a securities law violation to contact the SEC and provide assistance in the prosecution.
Dodd-Frank also expands the universe of those liable. “Previously, the SEC had to show that anyone who assisted another's securities law violation did so with actual knowledge of the violation,” say Grunberg and Johnson. “Dodd-Frank reduces this standard to ‘recklessness.’ It also extends such secondary liability not only under the Securities Act but also under the Investment Company Act and the Investment Advisors Act. Dodd-Frank has preliminarily authorized a series of increases in SEC funding over the next five years from $1.3 billion in fiscal 2011 to $2.25 billion in 2015, effectively doubling the SEC's budget. In addition, the SEC can tap a new $100 million Reserve Fund to supplement its budget, and that fund will be replenished in $50 million annual increments out of the SEC fee income.
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