WJ Washington Update - ncpers

November 10, 2016

Washington Update

This Week in Congress  House – The House was in recess.  Senate –The Senate was in recess. Next Week in Congress  House –The House will consider H.R. 5711, to prohibit the Treasury from authorizing certain transactions by a U.S. financial institution in connection with the export or reexport of a commercial passenger aircraft to Iran; and the “Midnight Rules Relief Act of 2016” (H.R. 5982). House Republicans will hold Leadership elections on November 15.  Senate – The Senate will be in session and is expected to begin consideration of the “Gold Star Families Voices Act” (H.R. 4511). TAX Tax Reform Appears Imminent in 115th Congress Following Republican Sweep in the Elections Key Points:  Brady says movement on tax reform within the first 100 days of 115th Congress  Trump’s most recent tax policy proposal is closely aligned with House GOP Blueprint Following the Republicans sweep of winning the Presidency, Senate, and House, the possibility of tax reform appears increasingly likely. House Ways and Means Committee Chairman Kevin Brady (R-TX) said Congress will be ready to act on legislation to overhaul the U.S. tax code in the first 100 days of President-elect Donald Trump’s Administration, reporting that the House Ways and Means Committee staff is “writing elements of the tax legislative text as we speak.” Trump’s tax policy proposal is similar in several ways to the House GOP Blueprint, and includes cutting the corporate tax rate to 15

percent from 35 percent and repatriation of corporate profits held overseas at a one-time tax rate of 10 percent. The proposal would also cut “most corporate tax expenditures” except for the R&D credit and give U.S.-based manufacturers the option of full expensing or the interest deduction. The House Blueprint proposes immediate expensing, and would eliminate the interest deduction and other deductions and credits. Senate Finance Committee Chairman Orrin Hatch (R-UT) said that the Committee will renew its efforts on tax reform in 2017, which may include Hatch’s corporate integration proposal, which would eliminate the double layer of corporate taxation. The Committee is also likely to address the IRC Section 385 debt Table of Contents Taxes Financial Services Energy & Environment Defense Health Transportation & Infrastructure Technology

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Williams & Jensen – Washington Update

November 10, 2016

equity rules.

FINANCIAL SERVICES

Senator Chuck Schumer (D-NY), the expected Senate Minority Leader, has indicated interest in an international tax reform proposal that would allow for U.S. companies to repatriate overseas earnings as a method to pay for U.S. infrastructure.

Election Impacts on Senate Banking and House Financial Services Panels

Comprehensive tax reform package may be passed using the budget reconciliation process, which was used in 2001 and 2003 to pass the Bush tax cuts, and in 2010 to pass the Affordable Care Act. Lame Duck Tax Extenders Package Looks Less Likely Key Points:  The approximately three dozen extenders appear less likely to be addressed in lame duck session It appears increasingly unlikely that Congress will act on the approximately three dozen tax extenders that expire at the end of 2016, and the several renewable tax provisions “left out” of a deal at the end of 2015. Prior to the Republican sweep in this week’s elections, the Senate looked likely to act on tax extenders; however, House Republicans have consistently opposed to a tax extenders package, arguing that any action should occur in the context of comprehensive tax reform. Given that tax reform could be on the agenda for 2017, odds of a tax extender package in 2016 have diminished.

Key Points:  Most members of the Senate Banking Committee and House Financial Services Committee won reelection, although one Republican Senator and two Representatives on the panels lost their reelection bids.  Senator Mike Crapo (R-ID) is expected to lead the Senate Banking Committee in the next Congress, with Senator Sherrod Brown (D-OH) as the lead Democrat on the panel, while Representatives Jeb Hensarling (R-TX) and Maxine Waters (D-CA) are expected to remain Chairman and Ranking Member, respectively, of the House Financial Services Committee. The historic election for the White House also resulted in Republicans maintaining control of both the House of Representatives and the Senate in the next Congress, although with slightly smaller margins. The Louisiana Senate race is headed for a December runoff election, making it possible that Republicans end up with 52 Senate seats, compared to the current 54 seats.

For more information about tax issues you may email or call Christopher Hatcher at 202-659-8201. Laura Simmons contributed to this section.

Upcoming Dates November 14: House and Senate reconvene for lame duck session December 9: FY 2017 CR expire January 20, 2017: Inauguration Day February 6, 2017: President to submit FY 2018 budget request February 15, 2017: CBO releases annual budget and economic outlook March 15, 2017: Debt limit suspension ends September 30, 2017: FY 2017 ends and FAA extension expires

Williams & Jensen, PLLC 701 8th Street, N.W. Suite 500 Washington, D.C. 20001 Telephone: (202) 659-8201 Fax: (202) 659-5249 www.williamsandjensen.com

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 The only member of the Senate Banking Committee who lost reelection was Senator Mark Kirk (R-IL). All other Republican Banking Committee members won their reelection races: Senators Toomey (R-PA), Mike Crapo (R-ID), Jerry Moran (R-KS), Tim Scott (R-SC), and Richard Shelby (R-AL). The only current Democratic member of the Committee facing reelection, Senator Charles Schumer (D-NY), easily won his race. Senator Mike Crapo (R-ID) is expected to be the next Chairman of the Committee, and Senator Sherrod Brown as the Ranking Member. With Crapo becoming Chairman next year and Kirk losing his reelection bid, it will open up the chairmanships of the Securities, Insurance and Investment Subcommittee, the on National Security and International Trade and Finance Subcommittee, and potentially other subcommittees. There were a handful of tight races of members of the House Financial Services Committee, with Representative Scott Garrett (R-NJ), Chairman of the Capital Markets Subcommittee, and Representative Frank Guinta the only ones to lose their reelection bids. Congressman Jeb Hensarling (R-TX) and Congresswoman Maxine Waters (D-CA) are expected to remain as Chairman and Ranking Member, respectively. With the loss of Garrett and the retirement of Representative Randy Neugebauer (R-TX), the Chairman of the Financial Institutions Subcommittee, there will be some changes with subcommittee chairmanships. Banking Agencies Issue Joint Proposal on Private Flood Insurance Key Points:

The proposed rule would clarify what private flood insurance policies lenders are required to accept.

On October 31, the Board of Governors of the Federal Reserve System, the Farm Credit Administration (FCA), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) issued a joint notice of proposed rulemaking to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. As noted in a joint press release, the proposed rule would “require regulated lending institutions to accept certain private flood insurance policies in addition to policies made available by the Federal Emergency Management Agency.” The Biggert-Waters Act required lenders to accept private flood insurance policies which meet the standards in the Act, in order to satisfy the mandatory purchase provision. As described in the press release: The proposed rule includes provisions to assist lending institutions in identifying private flood insurance policies they would be required to accept. The proposal also would clarify that lenders retain their discretion to accept private flood insurance policies that do not meet the criteria for mandatory acceptance, provided certain conditions are met. The proposed rule will be subject to a 60 day comment period. CFTC Issues Supplemental Proposal on Regulation Automated Trading Key Points:


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The CFTC approved a supplemental proposal to modify its proposed Regulation Automated Trading, including allowing the CFTC Commissioners to seek access to source code. Commissioner J. Christopher Giancarlo opposed the proposal, suggesting that its source code provisions are unconstitutional and unfair.

At a November 4, open meeting the Commodity Futures Trading Commission (CFTC) approved a supplemental proposal to Regulation Automated Trading (Regulation AT), by a 2-to-1 vote with Commissioner J. Christopher Giancarlo voting in opposition. Chairman Timothy Massad, in a statement, said the proposal requires reasonable risk controls, using a principles-based approach that would codify many industry best practices. He emphasized that the proposal “does not prescribe the parameters or limits of such controls, because we know how diverse market participants can be, and we believe they are the ones who should determine those specifics.” He said the rule requires testing and monitoring of algorithms. He said the proposal requires the preservation of source code and ensures the CFTC would have access to such records when necessary. Massad said the rule makes changes to the original proposal to reflect the comments received, particularly related to source code. He said the Commission itself would have to seek access to source code, noting that no staff member will have the authority to do so. He stated that the Commission could direct the staff to seek source code either through a subpoena or a special call. He said the proposal describes the steps the CFTC can take to preserve the confidentiality of source code. Massad said the CFTC has long engaged in surveillance that involves reviewing information with significant proprietary value. He said there CFTC should

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not have a regulatory regime where those who trade at human speeds are subject to effective surveillance, but machines are not. Giancarlo, in a statement, said there are practical and useful elements in Regulation AT and some of the changes in the supplemental are appropriate. However, he noted that he has a number of concerns with the proposal. He said any positive effects of the rule are undone by the requirement that the proprietary source code of a trader be available to the CFTC or the Justice Department without a subpoena. He said the subpoena process provides owners of property with due process under the law. He stated that the subpoena process allows the property owner to challenge the scope, timing and manner of delivery. He stated that the supplemental proposal would strip owners of intellectual property of their due process under the law. He said the procedural burdens on the CFTC do not assuage these concerns. Giancarlo raised concerns with the confidentiality of the data obtained by the CFTC. He said the CFTC should include specific protections in the proposal, such as that it would only review source code at the owner’s premises or on computers not connected to the internet. He said it is “absurd” to suggest source code will be kept secure, pointing to the breaches at other government agencies, such as the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC) and the Office of Personnel Management (OPM). He also suggested that the CFTC has an “imperfect record” as a guardian of confidential proprietary information. He noted that similar demands could be made by the National Security Agency (NSA), the Federal Trade Commission (FTC) or even by foreign regulators. He suggested that these provisions will make a “mockery” of prior attempts to block Chinese government efforts to obtain the


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source code of U.S. firms. He contended that the source code requirements will be challenged in court, forcing the CFTC to spend its limited resources defending a constitutionally “dubious” rule. He said while he normally votes in favor of proposed rulemaking in order to receive public comment, he would have to vote against the supplemental. He said abandoning the subpoena process does not address the challenge of automated trading, but rather strips the firms the CFTC regulates of their constitutional rights. Massad responded that the rule is about looking at records, not about the taking of property. He emphasized that if the CFTC looks at source code it does not stop the trader from trading. He said the real concern in this area is with confidentiality, emphasizing he takes the CFTC’s responsibility in this area very seriously. He stated that while the CFTC was recently subject to a denial of service attack, their data was not breached. He added that CFTC employees are subject to statutory and criminal prohibitions on the use of information they obtain working there. The supplemental proposal will be subject to a 60 day comment period. SEC Releases Additional Economic Analysis on Proposed Rule on the Use of Derivatives Key Points:  SEC staff released additional analysis related to the use of risk-adjustment and haircut schedules under the proposed rule on the use of derivatives by registered funds and business development companies. On November 1, Securities and Exchange Commission (SEC) staff released

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additional economic analysis related to the Commission’s proposed rule regarding the use of derivatives by registered funds and business development companies (BDCs). An SEC press release explained that the analysis would help inform evaluation of comments on the proposal, suggesting “its portfolio limitations should be based on risk-adjusted gross notional exposure, and that its asset segregation requirement should permit certain liquid assets other than cash or cash equivalents to be segregated against a fund’s derivatives exposures, subject to appropriate haircuts.” The press release also explained, “Commenters suggest using riskadjustment and haircut schedules that were originally developed for other regulatory purposes.” The SEC analysis assesses “the internal consistency of these schedules across asset classes and categories for the purposes of risk-adjustment and risk-weighting with respect to the rule.” Upcoming Hearings and Events November 14

Financial Technology Forum: The Securities

and Exchange Commission (SEC) will host a forum to discuss financial technology (fintech) innovation in the financial services industry. The forum will include opening remarks by SEC Chair White, Commissioner Kara Stein and Commissioner Piwowar. Panels will include discussions on: the “Impact of Recent Innovation in Investment Advisory Services”; “Impact of Recent Innovation on Trading, Settlement, and Clearance Activities”; “Impact of Recent Innovation in Capital Formation”; and “Investor Protection in the Fintech Era.” November 15

SEC Oversight: The House Financial Services Committee will hold a hearing entitled, Examining the SEC’s Agenda, Operations and


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FY 2018 Budget Request.” Securities and Exchange Commission (SEC) Chair Mary Jo White will testify at the hearing.

SEC Open Meeting: The Securities and

Exchange Commission (SEC) will hold an open meeting to “consider whether approve a proposed national market system (“NMS”) plan to create, implement, and maintain a consolidated audit trail [CAT], submitted pursuant to Rule 613 of Regulation NMS.”

FDIC Open Meeting: The Federal Deposit

Insurance Corporation (FDIC) will hold an open meeting to consider a final rule on “Recordkeeping for Timely Deposit Insurance Determination.” November 16

FSOC Meeting: The Financial Stability

Oversight Council (FSOC) will meet in open and executive sessions. The open session is to include “an update on the work of the Alternative Reference Rates Committee; an update on the Council’s review of asset management products and activities; and revisions to the Council’s regulations under the Freedom of Information Act, in accordance with the FOIA Improvement Act of 2016.” The executive session will include “a presentation on stress tests of central counterparties conducted by the Commodity Futures Trading Commission, a discussion of confidential data related to the Council’s review of asset management products and activities, and an update on the annual re-evaluation of the designation of a nonbank financial company.”

Appraisals: The House Financial Services

Committee’s Subcommittee on Housing and Insurance will hold a hearing entitled “Modernizing Appraisals: A Regulatory Review and the Future of the Industry.”

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November 17

Government-Business Forum on Small Business Capital Formation: The Securities and Exchange Commission (SEC) will host its annual Government-Business Forum on Small Business Capital Formation.

Market Risk Advisory Committee: The

Commodity Future Trading Commission (CFTC) will hold a meeting of its Market Risk Advisory Committee (MRAC). The following items are scheduled for the meeting: “(1) the CCP Risk Management Subcommittee (CRM) will present to the MRAC its final recommendations on how Central Counterparties (CCPs) can further enhance their efforts in preparing for the default of a significant clearing member as discussed at the April 2, 2015, November 2, 2015, and June 27, 2016 meetings of the MRAC; and (2) the MRAC will discuss the Bank of England’s coordinated CCP default fire drill.”

Consumer Access to Financial Records:

The Consumer Financial Protection Bureau (CFPB) will hold a field hearing to discuss consumer access to financial records. CFPB Director Richard Cordray is scheduled to speak at the hearing. November 29

Equity Market Structure Advisory Committee: The Securities and Exchange

Commission (SEC) will hold a meeting of its Equity Market Structure Advisory Committee (EMSAC) to “focus on recommendations and updates from the four subcommittees.” November 30

Consumer Financial Protection Bureau:

The House Financial Services Committee may hold a hearing regarding the Consumer Financial Protection Bureau (CFPB).


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December 1-2

Financial Stability Conference: The Office

of Financial Research (OFR) will hold its 2016 Financial Stability Conference. Topics to be discussed include: identifying financial innovation; measuring and monitoring financial innovation; structure of financial markets; leveraging qualitative information; ensuring high-quality data; data sharing, accessibility, and transparency; supervisory application of models and data; macroprudential policies; coordination of macroprudential and monetary policy; stress testing; interconnectedness; market and funding liquidity; central counterparties; emerging financial technology; and cybersecurity. For more information about financial services issues you may email or call Joel Oswald at 202-659-8201. Rebecca Konst and Alex Barcham contributed to the articles. ENERGY & ENVIRONMENT Outlook for Energy and Environment Issues Key Points:  In 2017 the Trump Administration will shift the course of energy and environmental policy, especially through control of federal agencies and the regulatory process.  Trump will seek to limit regulations on domestic energy production. He will have wider latitude to halt development and promulgation of future regulations, but will face some challenges in rescinding regulations that become effective before President Obama leaves office on January 20, 2017. With Donald Trump’s victory in the presidential election, and with Republicans maintaining control of the House and Senate,

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energy and environmental policy will change significantly, with a shift in regulatory policy being the most pronounced. Throughout the campaign, Trump was consistent in calling for fewer regulations, and enthusiastically embraced the U.S. oil and gas revolution. His key advisors on energy policy – who could play roles in the new Administration – include Continental Resources CEO Harold Hamm and Representative Kevin Cramer (RND). In his prepared remarks given on May 26, 2016, Trump described his “100-day action plan” on energy policy:  We’re going to rescind all the jobdestroying Obama executive actions including the Climate Action Plan and the Waters of the U.S. rule.”  “We’re going to save the coal industry and other industries threatened by Hillary Clinton’s extremist agenda.”  “I’m going to ask Trans Canada to renew its permit application for the Keystone Pipeline.”  “We’re going to lift moratoriums on energy production in federal areas.”  “We’re going to revoke policies that impose unwarranted restrictions on new drilling technologies. These technologies create millions of jobs with a smaller footprint than ever before.”  “We’re going to cancel the Paris Climate Agreement and stop all payments of U.S. tax dollars to U.N. global warming programs.”  “Any regulation that is outdated, unnecessary, bad for workers, or contrary to the national interest will be scrapped. We will also eliminate duplication, provide regulatory certainty,


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and trust local officials and local residents.” “Any future regulation will go through a simple test: is this regulation good for the American worker? If it doesn’t pass this test, the rule will not be approved.”

Trump will face some significant challenges in rescinding rules that have been finalized. To repeal a rule that is final and has taken effect, a federal agency would be required to undertake a full notice and comment rulemaking process, in the same way that it would do so in promulgating a new rule. In order to withstand a court challenge to the action, the agency repealing a final rule must also provide a rational explanation for why the rule is no longer appropriate.

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Speaker Paul Ryan (R-WI) and his colleagues, and outlined a number of proposed reforms, including several changes to the regulatory process. The report found that “[e]very step in the process needs to be revamped: whether to regulate, how to regulate, and follow-up review of regulations.” In addition, the report argued that new federal rules should be promulgated “only when necessary” and designed to be “minimally intrusive [and] stay within the legal mandate…” The report emphasized the problems caused by federal permitting delays: In some respects, lengthy permitting delays are more damaging than timely rejections. With the latter, companies can at least consider their legal options or perhaps make modifications to their proposal and re-apply. Years-long delays also encourage some companies to simply give up and withdraw their applications. Uncertain timelines also wreak havoc on the ability to secure financing for projects, especially large-scale ones.

Congress could pass Congressional Review Act resolutions that rescind regulations that are promulgated late in the Obama Administration. The Congressional Review Act allows for resolutions that rescind regulations to pass with a simple majority in the Senate. The President must sign a resolution that is approved by Congress.

Congressional Republicans: Congressional Republicans will be aligned with the Trump Administration on pursuing an agenda that would roll back or modify specific regulations, while also reforming the federal rulemaking process itself. With Republicans maintaining only a narrow majority in the Senate, they face significant obstacles – primarily the Democrats’ ability to filibuster bills – in enacting a deregulatory agenda. On June 14, 2016, House Republicans released “A Better Way: Our Vision for a Confident America” task force report on the economy. The report was part of a series issued by

Regarding energy policy, the report declared, “We need to connect our energy boom to consumers and companies, responsibly produce more of our own resources, and end the needless delays that hold up jobs and projects indefinitely.” The report’s discussion on energy focused on the need to facilitate development of energy infrastructure and reduce impediments to energy production on federal lands and offshore.


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According to the report, federal regulatory and permitting processes are creating significant delays for energy infrastructure projects. The report contended that “[t]he number of energyrelated projects being delayed numbers well into the hundreds, and by some estimates are holding back in excess of 1 million jobs and over $1 trillion in economic activity.” The report’s recommendations on energy infrastructure focused on legislation that passed in the House of Representatives in the 113th and 114th Congresses, including:  The “North American Energy Infrastructure Act” (H.R. 3301), which would reform the processes for permitting cross-border energy infrastructure, including pipelines;  The “Natural Gas Pipeline Permitting Reform Act” (H.R. 161); and  The “North American Energy Security and Infrastructure Act”, a broad energy bill approved by the House of Representatives (H.R. 8). The report also described regulatory obstacles to energy development on federal lands, including:  Failure of the Bureau of Land Management (BLM) and the U.S. Forest Service to accommodate energy and economic activities as part of the “multiple uses” mandated under the Federal Lands Policy Management Act;  Presidential designations of national monuments under the Antiquities Act of 1906;  The Obama Administration’s prohibition of new coal leases on federal lands; and  “[A] substantial number of significant new regulations…pending finalization, [which] threaten onshore and offshore energy production, including but not

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limited to the BLM’s hydraulic fracturing rule, BLM’s venting and flaring rule, BLM’s onshore orders 3, 4, and 5, and BLM’s Planning 2.0 and [Bureau of Ocean Energy Management] and [Bureau of Safety and Environmental Enforcement’s] well control rule, offshore air regulations, financial assurance and risk assessment regulations, as well as the Arctic rule.” The Republicans’ proposed solutions to address restrictions on energy production on federal lands include:  Revising the 2017-2022 Outer Continental Shelf (OCS) Oil and Natural Gas Leasing Plan to include “access to new OCS acreage in order to foster safe and responsible offshore energy…”;  Authorizing the Secretary of Interior “to add new lease sales to existing plans…”  Providing states with “greater access to management decisions and responsibilities over federal lands within their borders”;  Requiring that “[a]ll regulatory costs…be independently verified by [a]…third party to provide greater scrutiny over economic findings”; and  Requiring “agencies at the Department [of Interior]…[to] adhere to strict permitting deadlines or ‘shot clocks’…in order to provide greater certainty and expediency in the regulatory process”.

Litigation of Regulations:

Obama

Administration

The Trump Administration will most likely discontinue the Obama Administration’s efforts to defend various energy and


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environmental regulations from court challenges. Key rules subject to litigation include:  Clean Power Plan: On October 23, 2015, the EPA published the final rule establishing the Clean Power Plan. The regulations would restrict greenhouse gas (GHG) emissions from existing electric generation facilities. On February 9, 2016, the Supreme Court issued a stay of the final rule. The U.S. Court of Appeals for the D.C. Circuit heard oral arguments for the case, West Virginia v. EPA, on September 27, 2016.  “Waters of the United States”: The EPA published the final rule on June 29, 2015 to clarify the definition of “waters of the United States” under the Clean Water Act. The rule would establish which wetlands, rivers, streams, lakes, ponds and other bodies of water are subject to federal regulation. On October 9, 2015, the U.S. Court of Appeals for the Sixth Circuit issued an Order of Stay blocking implementation of the rule. On February 22, 2016, a divided panel of the Sixth Circuit held that it has jurisdiction over the consolidated challenges (Murray Energy v. EPA) to the final rule. States challenging the regulations filed briefs with the Sixth Circuit on November 1, 2016. The EPA and U.S. Army Corps of Engineers must submit their briefs by January 18, 2017.  Hydraulic Fracturing on Federal Lands: On March 20, 2015, the BLM issued the final rule titled “Oil and Gas; Hydraulic Fracturing on Federal and Indian Lands”. The rule would impose significant new requirements on oil and gas production employing hydraulic

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fracturing on federal lands. The final rule’s effective date was June 24, 2015. The U.S. District Court for the District of Wyoming issued an “Order Postponing Effective Date of Agency Action” that day. On September 30, 2015, the same court issued a preliminary injunction blocking implementation of the regulations. On June 21, 2016, the U.S. District Court for the District of Wyoming issued an order setting aside the rule. The U.S. Court of Appeals for the Tenth Circuit announced on November 8, that it would hear oral arguments in an appeal of the District Court’s decision on January 17, 2017. For more information about energy and environment issues you may email or call Frank Vlossak at 202659-8201. Updates on energy and environment issues are also available on twitter. DEFENSE DOD May Submit A Supplemental In Lame Duck Key Points:  The Pentagon may submit a supplemental budget request to adjust OCO funds based on increased troop numbers  Such a supplemental would likely get folded into ongoing talks over the FY 2017 DOD topline Last week, Pentagon officials began discussing the supplemental request the Obama Administration would submit to pay for the additional troops the Department of Defense (DOD) has deployed in Iraq and Afghanistan. DOD Comptroller Michael McCord indicated that the Administration would request an


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additional $6 billion to fund the nearly 3,000 additional troops in Afghanistan and the nearly 5,000 troops sent to combat the Islamic State of Iraq and the Levant (ISIL). He stated that the Administration would submit its request “hopefully in time to inform an omnibus funding bill.” However, the next day, Secretary of Defense Ashton Carter walked back McCord’s numbers. He said that “[w]e’re still doing those estimates and assessing the situation and when we settle upon a figure that's when we'll submit to Congress.” Carter stated that “[i]f we're having additional success and we want to reinforce that success - and that has been our experience in the counter-ISIL campaign and also in Afghanistan - we want to have the funds to do that and so we're going to ask for them.” He also indicated that he did not the timeframe in which the DOD would submit the supplemental request. In a statement, Senate Armed Services Committee Chairman John McCain (R-AZ) said that “[i]t is time for President Obama and the DOD to come clean with the American people about the true cost of defending the nation.” He stated that “[t]he need for supplemental funding to support increased U.S. troop levels in Afghanistan and expanded operations against ISIL has been well-known for months…[a]nd our troops in harm’s way need and deserve this additional funding now.” McCain state that “[f]urther delay by the DOD in submitting and justifying a supplemental funding request to the Congress is unacceptable.” Earlier in the year, House Armed Services Committee Chairman Mac Thornberry (R-TX) had pressed the Administration to submit a supplemental request at the time it announced a slower drawdown of troops in Afghanistan.

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Nonetheless, the two chambers need to resolve different toplines in both the “FY 2017 DOD Appropriations Act” (H.R. 5293/S. 3000) and the “National Defense Authorization Act for FY 2017” (NDAA) (H.R. 4909/S. 2943) because the House had shifted Overseas Contingency Operations (OCO) funds to pay for DOD base requests above the budget request submitted in February. However, Senate Democrats and the White House have insisted on parity on increases in defense and non-defense funding with the Administration threatening to veto bills that did not do so. It remains to be seen how Senate Democrats and the White House will respond to any such Republican efforts in light of the election’s results. For more information on defense issues you may email or call Michael Kans at 202-659-8201. HEALTH 2017 Health Policy Outlook Under a Trump Administration Key Points:  Both Speaker of the House Paul Ryan (RWI) and Senate Majority Leader Mitch McConnell (R-KY) have said repealing the Affordable Care Act is a top priority.  Possible Secretary of Health and Human Services nominees include Ben Carson and Florida Governor Rick Scott. November 8 resulted in the election of Republican Donald Trump as the next President of the U.S. as well as sustained Republican majorities in both the House and Senate. Likely high on the agenda is the repeal of the “Affordable Care Act” (ACA). Already, Senate Majority Leader Mitch McConnell (RKY) and House Speaker Paul Ryan (R-WI) have said repeal is a majority priority.


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McConnell stated he “would be shocked if we didn’t move forward to keep our commitment to the American people” calling the ACA “the single worst piece of legislation among many pieces of legislation passed in the first two years of the Obama presidency.” Ryan has said he is expecting to “hit the ground running” after the inauguration emphasizing “this health care law is collapsing under its own weight.” During his campaign, Trump has also stated repeal of the ACA would be a priority and has called for the elimination of the individual mandate. Trump has also advocated for sale of health insurance across state lines to increase competition in the market. He proposed individuals be able to fully deduct health insurance premiums from their taxes and be able to make tax-free contributions to health savings accounts. Trump has also expressed support for price transparency from health providers. Other Obama-era health policies will likely be in the cross-hairs under the Trump Administration. As Governor of Indiana, Vice President-elect Mike Pence had a particular focus on Medicaid and Trump has already noted support for providing states block-grants for Medicaid. Another task for the new Administration will be selecting Trump’s cabinet. Dr. Ben Carson and Florida Governor Rick Scott, among others, are under consideration to be Secretary of Health and Human Services. Upcoming Hearings and Events November 14 Diabetes: Politico will hold a discussion on “The Diabetes Dilemma: An Agenda to Prevent the Preventable.”

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November 14-15 Cancer Care: The National Academy of Sciences will hold a workshop on “Cancer Care in Low-Resource Areas: Cancer Treatment, Palliative Care, and Survivorship Care.” November 15

Health Policy: The Brookings Institution will

hold its “21st Annual Wall Street Comes to Washington Roundtable” to explore the broad market trends shaping the health care system and how the political climate affects the outlook for health care companies.

Mental Health: The Congressional Mental

Health Caucus will hold a briefing on “SchoolBased Mental Health Programs: Helping Students Succeed.”

Maternal Care: The Coalition to Advance Maternal Therapeutics will hold a briefing on “Safe Medications for Moms and Babies Act.” November 16

Cancer Research: Friends of Cancer Research will hold its 2016 Annual Meeting to address critical issues in the development of new oncology drugs.

Health Policy: The Alliance for Health

Reform will hold a Post-Election Symposium: Health Care Policy in 2017.

340B Program: 340B Health will hold a briefing on “Post-Election Outlook Hospitals and the 340B Program.”

on

November 17 Innovation: The Bipartisan Policy Center will hold a discussion on “Realizing the Promise of Medical Innovation.”


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For more information about healthcare issues you may email or call Matthew Hoekstra or George Olsen at 202-659-8201. TRANSPORTATION AND INFRASTRUCTURE FHWA Announces Green Corridors Key Points:  The Administration unveiled steps to speed up adoption of electric vehicles On November 3, the Obama Administration announced a suite of actions that will accelerate the adoption of electric vehicles, including new corridors “establishing a national network of alternative fueling and charging infrastructure along national highway system corridors.” In its press release, the Federal Highway Administration (FHWA) explained that “55 routes that will serve as the basis for a national network of “alternative fuel” corridors spanning 35 states…[and] [t]hough the network is nearly 85,000 miles long, more miles will be added in the future to accommodate electric, hydrogen, propane and natural gas vehicles as additional fueling and charging stations are built.” In its fact sheet, the White House explained that “Today’s announcements demonstrate a continued partnership between the Administration, states, localities, and the private sector to achieve these shared goals:  Establishing 48 National Electric Vehicle Charging Corridors on our Highways: The U.S. Department of Transportation’s Federal Highway Administration (FHWA) today announced 55 Interstates that will serve as the basis for a national network of “alternative fuel” corridors spanning 35 states plus the District of Columbia.

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Today’s announcement includes designating 48 out of the 55 routes electric vehicle charging corridors, totaling almost 25,000 miles of electric vehicle routes in 35 states. To make it easier for drivers to identify and locate charging stations, states designated as “sign-ready” are authorized to use signs developed by FHWA that identify electric vehicle charging stations and other alternative fuels along the highways similar to existing signage that alerts drivers to gas stations, food, and lodging. Drivers can expect either existing or planned charging stations within every 50 miles. 28 States, Utilities, Vehicle Manufactures, and Change Organizations Commit to Accelerate Electric Vehicle Deployment on DOT’s Corridors: Today, the following organizations are committing to help accelerate the deployment of electric vehicle charging infrastructure along the Alternative Fuel Corridors designated by the U.S. Department of Transportation. These initial and future corridors will serve as a basis for a national network of electric vehicle charging infrastructure to enable coast to coast zero emission mobility on our nation’s highways. Conducting Two Studies to Evaluate the Optimal National EV Charging Deployment Scenarios: Early next year, DOE plans to publish two studies developed with national laboratories and with input from a range of stakeholders to support broad EV charging infrastructure deployment, including along DOT’s alternative fuel corridors. The first is a national EV infrastructure analysis that identifies the optimal number of


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charging stations for different EV market penetration scenarios. The second will provide best practices for EV fast charging installation, including system specifications as well as siting, power availability, and capital and maintenance cost considerations. Continuing to Partner with Stakeholders to Build Charging Infrastructure Along the National Charging Corridors: The White House will be convening key stakeholders in November 2016 to continue to encourage state and local governments and businesses to build public electric vehicle charging infrastructure along our national highways.

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significant challenges in carrying out its enhanced rail transit safety oversight and enforcement authority.” The OIG stated that “we initiated this audit to assess FTA’s actions to assume and relinquish direct safety oversight of a rail transit agency (i.e. WMATA)….[and] [a]s part of our review, we are also providing an update on FTA’s progress toward addressing the challenges to enhanced safety oversight we identified in 2012.”

Key Points:  The IG found that the FTA does not have a defined process in place in the event that the safety record of an agency requires a federal takeover  The IG looked at both the Washington Metro and at the FTA’s policies generally

The OIG noted that the “FTA has actions underway to develop policies and procedures to guide its assumption and relinquishment of direct safety oversight but lacks milestones for finalization…[and] is now executing a plan with milestones for a contractor to provide draft policies and procedures to FTA.” The OIG stated that “[h]owever, because that plan is only for the contractor’s deliverables, it does not include internal milestones for FTA to review and finalize the policies and procedures.” The OIG stated that “[a]lthough FTA officials indicated that the Agency will begin the finalization process after the contractor delivers the draft procedures, it has not established any milestones for doing so.” The OIG stated that “[a]s a result, FTA increases the risk of not being able to meet its direct safety oversight goals.”

On November 2, the Department of Transportation’s (DOT) Office of the Inspector General (OIG) released an audit of the Federal Transit Administration’s (FTA) safety oversight policies and procedures, which focuses in part on the FTA’s takeover of the Washington Metropolitan Area Transit Authority (WMATA) but also on the FTA’s authority to police transit safety as granted largely in the “Moving Ahead for Progress in the 21st Century Act” (MAP-21) (P.L. 112141). The OIG stated that “[b]ased on our previous work, we determined FTA may face

The OIG stated that “FTA’s slow progress in these areas limits its ability to maximize its safety oversight resources and proactively identify and mitigate safety risks…[and] [w]e are making a series of recommendations to strengthen FTA’s ability to assume and relinquish direct safety oversight and to improve FTA’s rail transit safety oversight overall: 1. Finalize and issue policies and procedures for assuming direct safety oversight authority, including criteria and decision-making processes, and

OIG Calls On FTA To Develop Policies and Procedures To Guide Takeovers of Rail Transit Agencies


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2. 3.

4.

5. 6. 7.

communicate the policies and procedures within the Agency. Communicate the policies and procedures for assuming direct safety oversight to the rail transit industry. Finalize and issue policies and procedures for relinquishing oversight authority to ensure an efficient transition of responsibilities back to the SSOA and communicate the policies and procedures within the Agency. Communicate the policies and procedures for relinquishing direct safety oversight to the rail transit industry. Finalize a plan with milestones to create a data-driven, risk-based safety oversight system. Update FTA’s methodology to meet the triennial SSOA audit requirement for all SSOAs. Finalize a plan with milestones for periodically updating the National Safety Plan.

For more information on transportation issues you may email or call Michael Kans at 202-659-8201. TECHNOLOGY Congress Turns To IOT In Light Of October DDOS Attack Key Points:  Two House Subcommittees will hold a joint hearing on the DDOS attack that impaired internet traffic in the U.S.  In two letters, Democratic Members call on the FTC to act to avoid a repeat of the use of IOT devices With the end of the election recess nearing, some in Congress have turned their attention to the October distributed denial of service

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(DDOS) attack of the internet routing company Dyn, possibly through the use of Internet of Things (IOT) devices acting as botnets. Next week, the House Energy and Commerce Committee’s Communications and Technology and Commerce, Manufacturing, and Trade Subcommittees will hold a joint hearing on the recent IOT denial of service attack titled “Understanding the Role of Connected Devices in Recent Cyber Attacks.” Moreover, Democratic Members have called on the Federal Trade Commission (FTC) to exercise its authority to better regulate IOT devices. In their November 9 press release, the Subcommittees explained that “[i]n light of the last month’s cyberattacks against global Internet routing company Dyn and the committee’s ongoing work examining emerging cybersecurity issues, next week the Subcommittees seek to examine how IOT connected devices are used in cyberattacks to deny access to popular websites or otherwise disrupt online services.” However, witnesses for the November 16 hearing have not been announced. On November 3, House Energy and Commerce Committee Ranking Member Frank Pallone Jr (D-NJ) and Commerce, Manufacturing, and Trade Subcommittee Ranking Member Jan Schakowsky (D-IL) sent a letter to FTC Chairwoman Edith Ramirez, asking the FTC to take action to shore up the security of IOT devices. Pallone and Schakowsky said in light of the “historic” October 21 DDOS attack, “[i]t is time for the FTC to strongly reinforce to both consumers and device manufacturers the need to adopt strong security measures.” They said that “[c]onsumers need to be aware of the risks posed by their lOT devices, and the FTC serves a critical role in offering that warning.”


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Pallone and Schakowsky stated that “[u]nfortunately, consumers do not always have the option of securing their own devices…[and] [s]ome device manufacturers have chosen to hard-wire in default passwords, leaving consumers helpless to remedy the problem.” They asserted that “[f]or these devices, only the manufacturer has the ability to update and secure the device to ensure it cannot be used in future attacks.” Pallone and Schakowsky stated that “most IOT devices are unable to protect themselves from botnets…[and] [m]anufacturers are often slow to patch vulnerabilities and many devices do not have the capacity to run antimalware solutions.”

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examine and identify whether any IOT manufacturers with username password pairs that can be exploited by botnets also sell products in the United States that are so deficient in basic security standards that it warrants an aggressive and thorough investigation by the Commission.” Blumenthal stated that “I encourage you to use the guidance you published in January 2015 to assess whether manufacturers implemented reasonable security standards.” He stated that “[e]ven though many of the IOT devices conscripted into the recent attack may have originated from overseas, strong FTC action can help improve the security standards of IOT products around the world since the United States is such a significant market.”

Pallone and Schakowsky stated that “[t]he FTC should immediately use all the tools at its disposal to ensure that manufacturers of IOT devices implement strong security measures to best protect consumers from cyberattacks.” They stated that “[f]uture devices should not be sold in U.S. streams of commerce with deficient security mechanisms…[and] [m]anufacturers should enable customers to change their passwords and in fact require customers to change default passwords during the set-up process.” Pallone and Schakowsky stated that “manufacturers should patch vulnerabilities in IOT devices, so they cannot be exploited by botnets.” They claimed that “[t]hese simple steps could significantly increase the security of IOT devices and mitigate future cyberattacks.”

Blumenthal asked Ramirez “for feedback on any creative remedies to rapidly remove from shelves and homes insecure products that cannot be updated without changing the hardware.” He noted that “there is no entity that currently coordinates or incentivizes the timely recall of products that do not necessarily pose a threat to health or safety, but may threaten personal privacy or national security.” Blumenthal stated that “[f]urthermore, more publicized recalls of such insecure products could heighten consumer awareness regarding security risks associated with IOT devices and will encourage and educate consumers to look for adequate security in the products they purchase.”

Also on November 3, Senator Richard Blumenthal (D-CT) also wrote a letter to Ramirez, urging her “to hold accountable any IOT manufacturers that fail to implement reasonable security standards, and could therefore be complicit in the next attack.” He stated that “it is incumbent upon the FTC to

Key Points:  The new privacy rule text is released that would circumvent the use of certain private information of consumers by ISPs

FCC Releases Broadband Privacy Rule

On November 2, the Federal Communications Commission (FCC) released the regulations


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adopted at its October 27 meeting that would limit how internet service providers (ISPs) collect, use, and disseminate certain information about the users of their services. The FCC stated that “[i]n this Report and Order (Order), we apply the privacy requirements of the Communications Act of 1934, as amended (the Act) to the most significant communications technology of today—broadband Internet access service (BIAS).” The FCC stated that “[p]rivacy rights are fundamental because they protect important personal interests—freedom from identity theft, financial loss, or other economic harms, as well as concerns that intimate, personal details could become the grist for the mills of public embarrassment or harassment or the basis for opaque, but harmful judgments, including discrimination.” The FCC stated that “[i]n adopting Section 222 of the Communications Act, Congress recognized the importance of protecting the privacy of customers using telecommunications networks…[and] Section 222 requires telecommunications carriers to protect the confidentiality of customer proprietary information.” The FCC stated that “[b]y reclassifying BIAS as telecommunications service, we have an obligation to make certain that BIAS providers are protecting their customers’ privacy while encouraging the technological and business innovation that help drive the many benefits of our increasingly Internet-based economy.” The FCC stated that “[t]he privacy framework we adopt today focuses on transparency, choice, and data security, and provides heightened protection for sensitive customer information, consistent with customer expectations.” The FCC stated that “[i]n adopting these rules we honor customer’s privacy rights and implement the statutory

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requirement that carriers protect the confidentiality of customer proprietary information.” The FCC stated that “[t]hese rules do not prohibit broadband providers from using or sharing customer information, but rather are designed to protect consumer choice while giving broadband providers the flexibility they need to continue to innovate.” The FCC stated that “[b]y bolstering customer confidence in broadband providers’ treatment of confidential customer information, we also promote the virtuous cycle of innovation in which new uses of the network lead to increased end-user demand for broadband, which drives network improvements, which in turn lead to further innovative network uses, business growth, and innovation.” The FCC explained that “[w]e next adopt rules protecting consumer privacy using the three foundations of privacy—transparency, choice, and security:  Transparency. Recognizing the fundamental importance of transparency to enable consumers to make informed purchasing decisions, we require carriers to provide privacy notices that clearly and accurately inform customers about what confidential information the carriers collect, how they use it, under what circumstances they share it, and the categories of entities with which they will share it. We also require that carriers inform their customers about customers’ rights to opt in to or opt out (as the case may be) of the use or sharing of their confidential information. We require that carriers present their privacy notice to customers at the point of sale, and that they make their privacy policies persistently available and easily accessible on their websites,


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applications, and the functional equivalents thereof. Finally, consistent with FTC best practices and with the requirements in the CPBR, we require carriers to give their customers advance notice of material changes to their privacy policies. Choice. We find that because broadband providers are able to view vast swathes of customer data, customers must be empowered to decide how broadband providers may use and share their data. In this section, we adopt rules that give customers of BIAS and other telecommunications services the tools they need to make choices about the use and sharing of customer PI, and to easily adjust those choices over the course of time. In adopting rules governing customer choice, we look to the best practices framework recommended by the FTC in its 2012 Privacy Report as well as the choice framework in the Administration’s CPBR and adopt a framework that provides heightened protections for sensitive customer information. For purposes of the sensitivity-based customer choice framework we adopt today, we find that sensitive customer PI includes financial information, health information, Social Security numbers, precise geo-location information, information pertaining to children, content of communications, web browsing history, application usage history, and the functional equivalents of web browsing history or application usage history. With respect to voice services, we also find that call detail information is sensitive information. We also adopt a tiered approach to choice, by reference to consumer expectations and context that

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recognizes three categories of approval with respect to use of customer PI obtained by virtue of providing the telecommunications service: o Opt-in Approval. We adopt rules requiring carriers to obtain customers’ opt-in approval for use and sharing of sensitive customer PI (and for material retroactive changes to carriers’ privacy policies). A familiar example of opt-in practices appears when a mobile application asks for permission to use geo-location information. o Opt-out Approval. Balancing important governmental interests in protecting consumer privacy and the potential benefits that may result from the use of non-sensitive customer PI, we adopt rules requiring carriers to obtain customers’ opt-out approval for the use and sharing of nonsensitive customer PI. o Congressionally-Recognized Exceptions to Customer Approval Requirements. Consistent with the statute, we adopt rules that always allow broadband providers to use and share customer data in order to provide broadband services (for example to ensure that a communication destined for a particular person reaches that destination), and for certain other purposes. Data Security and Breach Notification. At its most fundamental, the duty to protect the confidentiality of customer PI requires telecommunications carriers to protect the customer PI they collect


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and maintain. We encourage all carriers to consider data minimization strategies and to embrace the principle of privacy by design. To the extent carriers collect and maintain customer PI, we require BIAS providers and other telecommunications carriers to take reasonable measures to secure customer PI. To comply with this requirement, a carrier must adopt security practices appropriately calibrated to the nature and scope of its activities, the sensitivity of the underlying data, the size of the provider, and technical feasibility. We decline to mandate specific activities that carriers must undertake in order to meet the reasonable data security requirement. We do, however, offer guidance on the types of data security practices we recommend providers strongly consider as they seek to comply with our data security requirement, while recognizing that what constitutes “reasonable” data security evolves over time. For more information on technology issues you may email or call Michael Kans at 202-659-8201. This Week in Congress was written by Laura Simmons.


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November 10, 2016