WJ Washington Update - NCPERS Washington Update 01-30-2015.pdf · that the deficit for this fiscal year will amount to $468 billion, slightly less than the deficit in 2014. Long-term,

January 30, 2015 Washington Update

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TAXES CBO Projects the Deficit to Rise to More than $1 Trillion Over the Decade Key Points:

The Congressional Budget Office released its latest Budget and Economic Outlook, projecting the deficit will remain steady in 2015 and 2016 but resume an upward path again in 2017

This week, the Congressional Budget Office (CBO) issued its annual Budget and Economic Outlook: 2015 to 2025, which projected the federal budget deficit will remain steady in 2015 and 2016. However, the deficit is projected begin increasing in 2017 to over $1 trillion by the middle of the next decade. CBO estimated that the deficit for this fiscal year will amount to $468 billion, slightly less than the deficit in 2014. Long-term, the 2025 deficit is projected

to be $1.1 trillion and cumulative deficits over 2016–2025 are projected to total $7.6 trillion, about $175 billion less than CBO’s August estimate for that period. The current projection of revenues and outlays for 2015-2025 are both lower than previously estimated in August 2014. Though CBO estimates that federal revenues will rise significantly by 2016, projections have dropped since the August report by $93 billion due to the enactment of a one year retroactive extension of expired tax measures through

This Week in Congress

House – The House passed the “LNG Permitting Certainty and Transparency Act” (H.R. 351).

Senate – The Senate passed the “Keystone XL Pipeline Act” (S. 1) by a vote of 62 - 36. Majority Leader Mitch McConnell (R-KY) filed cloture on the motion to proceed to the “Department of Homeland Security Appropriations Act, 2015” (H.R. 240).

Next Week in Congress

House – The House is expected to consider the “Unfunded Mandates Information and Transparency Act of 2015” (H.R. 50), the “Small Business Regulatory Flexibility Improvements Act of 2015 (H.R. 527); and a bill to repeal the “Patient Protection and Affordable Care Act” and health care-related provisions in the “Health Care and Education Reconciliation Act of 2010.”

Senate – The Senate will vote on the cloture motion to proceed to the “Department of Homeland Security Appropriations Act, 2015” (H.R. 240); and will vote on the “Clay Hunt Suicide Prevention for American Veterans Act” (H.R.203).

Table of Contents Taxes 1 Trade 5 Financial Services 6 Energy & Environment 9 Defense 13 Health 21 Transportation & Infrastructure 23 Technology 29

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http://www.cbo.gov/publication/49892?utm_source=feedblitz&utm_medium=FeedBlitzEmail&utm_content=812526&utm_campaign=Hourly_%272015-01-26_15%3a00%3a00%27

Williams & Jensen – Washington Update January 30, 2015

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December 2014. Finally, CBO estimated that outlays have declined by $94 billion from the August projection. Jenkins and Kind Introduce Legislation to Expand and Strengthen 529 College Savings Plans Key Points:

Representatives Jenkins (R-KS) and Kind (D-WI) introduce legislation to expand, modernize, and strengthen tax-free 529 college savings plans

President Obama drops budget proposal to eliminate tax-free contributions to 529 plans

Representatives Lynn Jenkins (R-KS) and Ron Kind (D-WI) introduced the “Savings Enhancement for Education in College Act” (H.R. 529) to expand, modernize, and strengthen tax-free 529 college savings plans. H.R. 529 was previously introduced in the last Congress, as well. The bill comes on the heels of a proposal unveiled last weekend by the White House to eliminate tax-free contributions to 529 plans as part of a broader tax plan intended to help the middle class. The plan was criticized by both Congressional Democrats and Republicans, and President Barack Obama announced this week that he would drop the proposal. The White House said it will continue to work with Congress to push other education-related tax provisions. Working Groups Expected to Produce Preliminary Reform Ideas by March or April; Unclear Whether Stakeholders Can Comment Key Points:

Senate Finance Committee Chairman said it is unclear whether he will open the panel's tax reform working groups to wide-ranging public commentary

Preliminary ideas expected from working groups in March or April

Senate Finance Committee Chairman Orrin Hatch (R-UT) said that the process for opening the Committee’s working groups up to general public commentary is unclear and pointed out the potential difference from efforts undertaken by former House Ways and Means Committee Chairman Dave Camp (R-MI) in the last Congress. Hatch did comment that the mission of the working groups is to gather information on tax policies and hammer out recommendations to the full Committee on how an overhaul should proceed. Hatch also said he expects the five working groups to come up with preliminary ideas for tax changes by March or April but does not expect any legislative text until later. As details unfold, it should be noted that the exercise will be nonbinding but could demonstrate areas of agreement that the Committee could act upon at some point.

Upcoming Dates February 2, 2015: Administration Submits FY 2016 budget request February 27, 2015: CR for FY 2015 DHS appropriations expires March 15, 2015: Debt limit suspension expires March 31, 2015: SGR patch expires (aka Doc Fix) May 2015: Highway Trust Fund patch and MAP-21 extension expires June 30, 2015: Export-Import Bank reauthorization expires September 30, 2015: FAA reauthorization expires and FY 2015 ends


https://www.congress.gov/bill/114th-congress/house-bill/529?q=%7B%22search%22%3A%5B%22529%22%5D%7D





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Senators Float Repatriation Tax Holiday to Finance Highway Trust Fund: Hatch Suggests Revenue Issues Remain Key Points:

Senators Paul (R-KY) and Boxer (D-CA) propose a $6.5 percent repatriation tax holiday for U.S. companies who bring earnings back to the United States

Senator Vitter (R-LA) lists repatriation as a long-term financing option for the Highway Trust Fund

Senate Finance Chairman Hatch (R-UT) indicated that the negative revenue impacts of any voluntary repatriation mean that such a voluntary proposal is not workable

This week, Senators Rand Paul (R-KY) and Barbara Boxer (D-DA) said they are proposing a repatriation tax holiday, whereby U.S. companies who bring income held offshore back to the U.S., will be subject to a discounted tax rate of 6.5 percent on those earnings. The revenue earned from this one time repatriation of earnings would be used to finance the Highway Trust Fund (HTF). The proposal has not yet been scored; however, the Joint Committee on Taxation estimated last year that a similar proposal would raise roughly $95.8 billion over ten years. On a related note, this week Senator David Vitter (R-LA) said Congress has three realistic options for fixing the Highway Trust Fund: a gas tax hike paired with a tax cut of some other type, repatriation or additional domestic energy production. Vitter said tax repatriation as part of a larger tax reform package would not be a permanent solution but said the revenue gained would be enough to fund a long-term bill. Highway and transit programs are funded until May 31, 2015 at which point Congress will have to come up with additional revenue. The

last extension of the HTF was funded by a pension smoothing measure and customs fees and raised roughly $9.9 billion over 10 years; however the federal government spends more than $50 billion per year on surface transportation programs. The proposal was quickly criticized by Senate Finance Committee Chairman Orrin Hatch (R-UT) reasoning a repatriation holiday would not actually raise revenue for the government, asserting reform of the international tax code is the proper course of action. Nunes Announces Changes to Business Tax Reform Plan Key Points:

Representative Devin Nunes (R-CA) made changes to a business tax reform plan he floated several weeks ago to gradually lower the tax rate for businesses over a decade, eventually reaching 25 percent

House Ways and Means Committee Member Representative Devin Nunes (R-CA) announced changes to the “American Business Competitiveness Tax Reform” proposal, a business tax reform plan he announced several weeks ago. The plan is a consumption-style tax approach that would reduce the top tax rate all businesses to 25 percent, allow for 100 percent immediate expensing in place of current depreciation schedules, and repeal all other tax credits and deductions in current law. The revised draft would gradually lower the tax rate for businesses over a decade, eventually reaching 25 percent while wiping away all credits and deductions immediately. He has not yet introduced legislation to this effect. The change that may be most important is that he removed the 50% cap on employee compensation expenses, make sure that is case


http://www.hatch.senate.gov/public/_cache/files/1b24c4cf-6005-4a4e-bab7-3d9e3820c509/JCT%206-6-14.pdf





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and include, allowing all compensation expenses to be deducted. Ryan and Roskam Introduce Legislation to Prohibit the IRS from Changing 501(c)(4) Rules Key Points:

Ways and Means Committee Chairman and Oversight Subcommittee Chairman introduce a bill to prohibit the IRS from changing the way it handles applications for 501(c)(4) status

This week, Ways and Means Committee Chairman Paul Ryan (R-WI) and Oversight Subcommittee Chairman Peter Roskam (R-IL) introduced the “Stop Targeting of Political Beliefs by the IRS Act of 2015” (H.R. 599) to prohibit the Internal Revenue Service (IRS) from changing the way it handles applications for 501(c)(4) status. The bill also requires the IRS to apply the standard it used prior to the 2014 scandal involving 501(c)(4) organizations on the issue of targeting applicants because of their political beliefs. Specifically, the bill would stop further action on the IRS proposed regulations on how groups applying for tax code Section 501(c)(4) status are evaluated. Congressional Republicans have introduced similar bills in the past. House to Consider a Package of Permanent Charitable Extenders and Small Business Expensing Provision in Coming Weeks Key Points:

House to vote on package of permanent charitable extenders and small business expensing provision in coming weeks

This week, House Majority Leader Kevin McCarthy (R-CA) circulated a memorandum outlining agenda for the House in February, including plans to consider two bills that

reinstate permanently a handful of tax provisions. The first bill would permanently extend three charitable measures including contributions of capital gain real property made for conservation purposes; an enhanced charitable deduction for contributions of food inventory; and tax-free distributions from individual retirement plans for charitable purposes. The second bill would make permanent section 179 expensing for small businesses. A similar bill, the “Supporting America’s Charities Act” (H.R. 5806,) failed in the House last December after the White House and House Democrats rallied against making any tax breaks permanent without finding a way to offset the lost revenue. The legislation could gain significant support from Senate Republicans but would likely be met by opposition from the White House again. Upcoming Hearings and Events February 3 IRS Fiscal 2016 Budget Request: The Senate Finance Committee will hold a full Committee hearing to consider the President’s Fiscal Year 2016 Budget for the Internal Revenue Service. Scheduled witnesses include John Koskinen, Commissioner, Internal Revenue Service. Fiscal 2016 Budget Issues: The House Committee on Ways and Means will hold a full Committee hearing on the President’s Fiscal Year 2016 Budget. Scheduled witnesses include Treasury Secretary Jacob Lew. Fiscal 2016 Budget: The Senate Budget Committee will hold a full Committee hearing to examine the President’s Fiscal Year 2016 Budget.


https://www.congress.gov/bill/113th-congress/house-bill/5806

https://www.congress.gov/bill/113th-congress/house-bill/5806





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Fiscal 2016 Budget Issues: The House Budget Committee will hold a full Committee hearing on the President’s Fiscal Year 2016 Budget. Scheduled witnesses include Shaun Donovan, Director, Office of Management and Budget. February 5 Treasury Fiscal 2016 Budget Request: The Senate Finance Committee will hold a full Committee hearing to consider the Administration’s fiscal 2016 budget request for the Department of the Treasury. Scheduled witnesses include Treasury Secretary Jacob Lew. For more information about tax issues you may email or call Christopher Hatcher at 202-659-8201. Tess Illos contributed to this report. TRADE House Ways and Means Committee Holds Hearing to Discuss United States Trade Policy Agenda Key Points:

Ways and Means held a hearing on the U.S. Trade Policy Agenda where Members of both parties expressed the desire to address Trade Promotion Authority, and various other negotiations including the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership

On January 27, the House Ways and Means Committee held a hearing entitled “U.S. Trade Policy Agenda.” Members expressed eagerness to address Trade Promotion Authority (TPA) immediately, urging an agreement would promote open markets and job growth. However, Members also expressed concern for passing TPA until Congress is fully confident the United States Trade Representative (USTR)

is on a clear path towards properly crafting Trans-Pacific Partnership (TPP) negotiations. Members from both parties were very interested in issues such currency manipulation, agricultural exports, and labor concerns. During the hearing, Chairman Paul Ryan (R-WI) said that if the United States properly negotiates its trade agreements, the U.S. can continue to lead the global economy. He called for the completion of trade agreements like the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP). Ryan said Trade Promotion Authority (TPA) is essential to protect American intellectual property (IP), and give Congress the final say over trade deals. Ryan also said he was committed to a renewal of the African Growth and Opportunity Act (AGOA). A broad range of additional topics were discussed during the hearing, including but not limited to: (1) Trade Promotion Authority (TPA); (2) The Trans-Pacific Partnership (TTP); (3) The Trans-Atlantic Trade and Investment Partnership (TTIP); (4) Agriculture Exports; (5) Biologics; (6) Currency Manipulation; (7) Free Trade Agreements (FTAs); (8) The Trade-in Services Agreement (TiSA); (9) Intellectual Property Standards; (10) West Coast Port Negotiations and (11) Miscellaneous Topics. For more information about tax issues you may email or call Christopher Hatcher at 202-659-8201. Tess Illos contributed to this report.


mailto:[email protected]

http://waysandmeans.house.gov/calendar/eventsingle.aspx?EventID=397941






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FINANCIAL SERVICES CFTC Commissioner Giancarlo Releases White Paper on Swaps Trading Rules Key Points:

CFTC Commissioner Christopher Giancarlo released a white paper proposing an alternative framework for swaps trading.

Commissioner Giancarlo stated that the CFTC’s swaps trading rules are flawed for several reasons, such as they adopt a U.S.-centric futures regulatory model and they “simply do not comply with the clear provisions of the law.”

On January 29, Commodity Futures Trading Commission (CFTC) Commissioner Christopher Giancarlo gave a keynote speech at a TabbFORUM event titled “Fixed Income 2015: Perfect Storm Navigating the Confluence.” Giancarlo suggested that the CFTC’s swaps trading rules are flawed for several reasons:

“Because they inappropriately adopt a U.S.-centric futures regulatory model that supplants human discretion with overly complex and highly prescriptive rules;

Because they are largely incompatible with the distinct liquidity, trading and market structure characteristics of the global swaps markets;

Because they fragment swaps trading into numerous artificial market segments and drive global market participants away from transacting with entities subject to CFTC swaps regulation;

Because they exacerbate the already inherent challenge in swaps trading – adequate liquidity – and thus increase market fragility and the systemic risk

that the Dodd-Frank reforms were predicated on reducing; and

Last, but foremost, because they do not do what Dodd-Frank expressly required them to do. They simply do not comply with the clear provisions of the law.”

Giancarlo noted he released a white paper titled “Pro-Reform Reconsideration of the CFTC Swaps Trading Rules: Return to Dodd-Frank.” He stated that the white paper analyzes “the mismatch between the CFTC’s swaps regulatory framework and the inherent dynamics of global swaps markets and the adverse consequences that have resulted.” He noted that the white paper proposes an alternative swaps trading framework based on five tenets:

“Comprehensiveness: Subject the broadest range of U.S. swaps trading activity to CFTC oversight.

Cohesiveness: Remove artificial segmentation of swaps trading and regulate all CFTC swaps trading in a holistic fashion.

Flexibility: Return to the Dodd-Frank Act’s express prescription for flexibility in swaps trading by permitting trade execution through “any means of interstate commerce,” allowing organic development of swaps products and market structure, accommodating beneficial swaps market practices and respecting the general nature of core principles.

Professionalism: Raise standards of professionalism in the swaps market by establishing requirements for product and market knowledge, professionalism and ethical behavior for swaps market personnel.

Transparency: Increase transparency through a balanced focus on promoting


http://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlos-4

http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/sefwhitepaper012915.pdf





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swaps trading and market liquidity as Congress intended.”

FHFA Director Mel Watt Testifies before House Financial Services Committee Key Points:

The hearing focused on three recent decisions by the Federal Housing Finance Agency (FHFA): (1) suspending a scheduled increase in guarantee fees; (2) allowing Fannie Mae and Freddie Mac to back loans with down payments as low as three percent; and (3) ending the suspension of contributions to the Affordable Housing Trust Fund.

Members on both sides of the aisle raised concerns with an FHFA proposed rule to change the standards for membership in the Federal Home Loan Bank (FHLB) system.

On January 27, the House Financial Services Committee held a hearing entitled “Sustainable Housing Finance: An Update from the Director of the Federal Housing Finance Agency.” The Committee received testimony from Federal Housing Finance Agency (FHFA) Director Mel Watt. The hearing focused on three recent decisions by the FHFA: (1) suspending a scheduled increase in guarantee fees; (2) allowing Fannie Mae and Freddie Mac to back loans with down payments as low as three percent; and (3) ending the suspension of contributions from Fannie Mae and Freddie Mac to the Affordable Housing Trust Fund. These decisions were criticized by a number of Committee Republicans. Chairman Jeb Hensarling (R-TX) suggested that these decisions will make it more difficult to transition to a sustainable housing finance system. He expressed concern that allowing Fannie Mae and Freddie Mac to back three percent loans will encourage them to take on riskier loans. Watt responded that these risks

will be offset by additional factors such as housing counseling, higher FICO score requirements, and private mortgage insurance. Several Republicans also expressed concern that the FHFA is loosening underwriting standards. Several Committee Democrats, including Ranking Member Maxine Waters (D-CA), defended the FHFA’s recent decisions, suggesting that funding the Affordable Housing Trust Fund will help to alleviate the need for affordable rental housing. Members on both sides of the aisle, such as Representatives Frank Lucas (R-OK), Daniel Kildee (D-MI), Joyce Beatty (D-OH) and Scott Tipton (R-CO), raised concerns with the FHFA’s proposed rule to revise the membership standards for Federal Home Loans Banks (FHLBs). Watt noted that the rule is still in the proposed rule stage and emphasized that the FHFA will carefully consider the 1,300 public comments. He said that approximately 90 percent of the public comments are in opposition to the proposal. Senate Committee Approves Iran Sanctions Bill Key Points:

The Senate Banking Committee approved legislation to expand sanctions on Iran.

Consideration of the bill on the Senate floor will be delayed until after a March 24, 2015 deadline.

On January 28, the Senate Banking Committee held a markup of the “Nuclear Weapon Free Iran Act of 2015” (S.269). The Committee voted 18 to 4 to approve the bill with Ranking Member Sherrod Brown (D-OH) and Senators Jack Reed (D-RI), Jeff Merkley (D-OR), and


http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=398622

http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_id=2af10821-e85f-4dd9-8b75-5840138e60aa

http://thomas.loc.gov/cgi-bin/query/z?c114:S.269:





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Elizabeth Warren (D-MA) voting against the measure. Chairman Richard Shelby (R-AL) stated there is agreement that sanctions were the main reason that Iran came to the negotiations table. However, he noted the talks have been extended on two occasions and the strength of the sanctions has been reduced. Shelby suggested that more is needed to compel Iran to reach an agreement. He explained the legislation would impose additional sanctions only if Iran fails to meet an agreement by the March 24 deadline and requires the President submit any agreement for Congressional approval. Ranking Member Sherrod Brown (D-OH) suggested adding additional sanctions are not needed at this time and might threaten the current negotiations. He explained the Administration has stated that multilateral sanctions at this time might in fact put into doubt the ability to keep the international coalition together. He noted the agreed upon delay to not consider the bill on the Senate floor until the March 24 deadline is passed does help alleviate some of the concerns. CFPB Issues Proposal to Modify Mortgage Rules for Smaller Lenders Key Points:

The Consumer Financial Protection Bureau (CFPB) issued a proposed rule regarding lending by small creditors in rural and underserved areas.

On January 29, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule “to facilitate responsible lending by small creditors, particularly in rural and underserved areas.” The proposal comes in response to arguments that the Bureau’ qualified mortgage

(QM) rule would significantly restrict the availability of credit in rural areas. A CFPB press release suggested that “If finalized, the proposal issued today would increase the number of financial institutions able to offer certain types of mortgages in rural and underserved areas, and help small creditors adjust their business practices to comply with the new rules.” The proposed rule has a sixty day comment period, which ends on March 30, 2015. The proposal includes: (1) an expanded definition of “small creditor”; (2) mortgage affiliates in calculation of small-creditor status; (3) expansion of the definition of “rural” areas; (4) “grace periods for small creditor and rural or underserved creditor status”; (5) “a one-year qualifying period for rural or underserved creditor status”; and (6) “additional implementation time for small creditors.” Upcoming Hearings and Events February 4 SEC Open Meeting: The Securities and Exchange Commission will hold an open meeting to consider the 2015 budget of the Public Company Accounting Oversight Board (PCAOB) and the related annual accounting support fee for the Board under Section 109 of the Sarbanes-Oxley Act of 2002. Cybersecurity: The Senate Commerce, Science, and Transportation Committee will hold a hearing entitled “Building a More Secure Cyber Future: Examining Private Sector Experience with the NIST [National Institute of Standards and Technology] Framework.” Financial Exploitation of Seniors: The Senate Special Aging Committee will hold a hearing entitled, “Broken Trust: Combating Financial Exploitation of Vulnerable Seniors”.


http://files.consumerfinance.gov/f/201501_cfpb_amendments-relating-to-small-creditors-and-rural-or-underserved-areas.pdf

http://files.consumerfinance.gov/f/201501_cfpb_amendments-relating-to-small-creditors-and-rural-or-underserved-areas.pdf

http://www.consumerfinance.gov/newsroom/cfpb-issues-proposal-to-facilitate-access-to-credit-in-rural-and-underserved-areas/





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HUD Oversight: The House Financial Services Committee’s Subcommittee on Oversight and Investigations will hold a hearing titled “Exploring Alleged Ethical and Legal Violations at the U.S. Department of Housing and Urban Development.” February 5 Treasury Budget: The Senate Finance Committee will hold a hearing to discuss the FY2016 for the Treasury Department. Treasury Secretary Jacob Lew is scheduled to testify. February 10 Federal Advisory Committee on Insurance: The Department of the Treasury’s Federal Advisory Committee on Insurance will meet to discuss retirement security, the Terrorism Risk Insurance Program, and the evolving insurance issues related to ride-sharing companies. The Committee will also receive updates from three subcommittees. February 12 Investor Advisory Committee Meeting: The Securities and Exchange Commission Investor Advisory Committee will hold a public meeting which will include: remarks from Commissioners; a recommendation of the Market Structure Subcommittee on shortening the trade settlement cycle; a discussion of proxy access; an update on the rule proposal of the Financial Industry Regulatory Authority (FINRA) regarding implementation of the Comprehensive Automated Risk Data System (CARDS); an update on Municipal Securities Rulemaking Board and FINRA proposals for improved disclosures for same- day, retail-size principal transactions in fixed income securities; and nonpublic subcommittee meetings. February 17

Advisory Committee on Small and Emerging Companies: The Securities and Exchange Commission Advisory Committee on Small and Emerging Companies will hold an open, public telephone meeting. The agenda for the meeting includes consideration of recommendations to the Commission regarding the definition of “accredited investor.” February 19 SEC Roundtable: The Securities and Exchange Commission will host a roundtable to explore ways to improve the proxy voting process. The first panel will include discussion “on the state of contested director elections and whether changes should be made to the federal proxy rules to facilitate the use of universal proxy ballots by management and proxy contestants.” The second panel will include discussion “on strategies for increasing retail shareholder participation in the proxy process.” 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 AND ENVIRONMENT Senate Passes Keystone XL Legislation Key Points:

The Senate approved the “Keystone XL Pipeline Act” by a 62-36 vote.

Before passing the bill, the Senate debated and voted on a number of amendments addressing energy and other issues.

While the Senate and House are expected to send a final bill to the President, the White House has threatened a veto.

On Thursday, the Senate approved the “Keystone XL Pipeline Act” (S. 1) by a 62-36



https://www.congress.gov/114/bills/s1/BILLS-114s1pcs.pdf

http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=114&session=1&vote=00049





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vote. The legislation would authorize construction of TransCanada’s Keystone XL Pipeline across the U.S.-Canadian border. This week, before voting on final passage, the Senate acted on the following amendments:

Drinking Water Protection: The Senate rejected an amendment offered by Senator Ben Cardin (D-MD)(SA 75), which would have provided “communities that rely on drinking water from a source that may be affected by a tar sands spill from the Keystone XL pipeline an analysis of the potential risks to public health and the environment from a leak or rupture of the pipeline”, by a 36-62 vote.

Great Lakes: The Senate rejected an amendment offered by Senator Gary Peters (D-MI)(SA 70), which would have required “the Administrator of the Pipeline and Hazardous Materials Safety Administration make a certification and submit to Congress the results of a study [on pipelines and the Great Lakes] before the [Keystone XL] pipeline may be constructed, connected, operated, or maintained”, by a 40–58 vote.

Solar Power: The Senate rejected an amendment offered by Senator Bernard Sanders (I-VT), which would have provided “rebates for the purchase and installation of an additional 10,000,000 photovoltaic systems by 2025”, by a 40–58 vote.

LNG Exports: The Senate rejected an amendment offered by Senator Ted Cruz (R-TX)(SA 15), which would have expedited approval of natural gas exports to World Trade Organization (WTO) nations, by a 53-45 vote (60 votes needed).

Lesser Prairie Chicken: The Senate rejected an amendment offered by Senator Jerry Moran (R-KS)(SA 73), which would have delisted “the lesser prairie-chicken as a threatened species under the Endangered Species Act of 1973” by a 54-44 vote (60 votes needed).

Campaign Finance: The Senate rejected an amendment offered by Senator Sheldon Whitehouse (D-RI)(SA 148), which would have required “campaign finance disclosures for certain persons benefitting from tar sands development”, by a 44-52 vote.

National Monuments: The Senate rejected an amendment offered by Senator Steve Daines (R-MT)(SA 132), which would have expressed the Senate of the Senate that designation of national monuments should be subject to “approval by the Governor and legislature of each State within the boundaries of which the proposed National Monument is to be located”, by a 50-47 vote (60 votes needed).

Climate Resiliency: The Senate rejected an amendment offered by Senator Christopher Coons (D-DE) (SA 115), which would have expressed “the sense of Congress regarding climate change and infrastructure”, by a 47–51 vote.

School Energy Retrofits: The Senate adopted an amendment offered by Senator Susan Collins (R-ME) (SA 35), on “Coordination of Energy Retrofitting Assistance for Schools”, by voice vote.

Wilderness Study Areas: The Senate rejected an amendment offered by Senator Lisa Murkowski (R-AK)(SA 166) which would have “release[d]















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certain wilderness study areas from management for preservation as wilderness”, by a 50-48 vote (60 votes needed).

Renewable Tax Credits: The Senate rejected an amendment offered by Senator Heidi Heitkamp (D-ND) (SA 133) which would have “express[ed] the sense of Congress that the Internal Revenue Code…should be amended to extend the credit with respect to facilities producing energy from certain renewable resources”, by a 47-51 vote.

Underground Storage of Natural Gas: The Senate rejected an amendment offered by Senator Kirsten Gillibrand (D-NY) (SA 48), to expand Safe Drinking Water Act regulations to cover the underground injection of natural gas, by a 35-63 vote.

Land and Water Conservation Fund: The Senate rejected an amendment offered by Senator Steve Daines (R-MT)(SA 246), which would have “express[ed] the sense of Congress that reauthorizing the Land and Water Conservation Fund should be a priority”, by a 47-51 vote.

Land and Water Conservation Fund: The Senate rejected an amendment offered by Senator Richard Burr (R-NC) (SA 92), which would have “permanently reauthorize[d] the Land and Water Conservation Fund”, by a 59-39 vote (60 votes needed).

Renewable Electricity Standard: The Senate rejected an amendment offered by Senator Tom Udall (D-NM) (SA 77), which would have established a national renewable electricity standard, by a 45-53 vote.

Tribal Treaties: The Senate adopted an amendment offered by Senator John

Barrasso (R-WY) (SA 245), which specified that nothing in the legislation “may change, suspend, supersede, or abrogate any trust obligation or treaty requirement of the United States with respect to any Indian nation without consultation with the applicable Indian nation…”, by voice vote.

Permit Savings Clause: The Senate rejected an amendment offered by Senator Barbara Boxer (D-CA)(SA 130), which would have specified that the legislation would not “affect the status of any Federal permit or authorization issued before the date of enactment of this Act for the [Keystone XL] pipeline and cross-border facilities…”, by voice vote.

Review of Keystone XL: The Senate rejected an amendment offered by Senator Cory Booker (D-NJ) (SA 155), which would have “allow[ed] permitting agencies [reviewing the Keystone XL Pipeline] to consider new circumstances and new information”, by a 41-56 vote.

Delay of Keystone XL Approval: The Senate rejected an amendment offered by Senator Ed Markey (D-MA)(SA 141), which would have “delay[ed] the effective date [of the legislation] until the President determines that the [Keystone XL] pipeline will not have certain negative impacts”, by a 36-62 vote.

OLSTF Excise Tax: The Senate rejected an amendment offered by Senator Ed Markey (D-MA)(SA 178), which would have “ensure[d] that products derived from tar sands are treated as crude oil for purposes of the Federal [Oil Spill Liability Trust Fund] excise tax on petroleum” by a 44-54 vote.

















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The House passed its version of the legislation (H.R. 3) on January 9. The Senate and House are expected to conference or otherwise reconcile their bills, sending a final version to President Barack Obama. However, the White House has warned that the bill faces a veto. In a Statement of Administration Policy (SAP) issued on January 7, the Office of Management and Budget asserted that the legislation “seeks to circumvent longstanding and proven processes for determining whether cross-border pipelines serve the national interest by authorizing the Keystone XL pipeline project prior to the completion of the Presidential Permitting process.” The SAP warns that “if presented to the President, his senior advisors would recommend that he veto this bill.” House Passes LNG Export Bill Key Points:

The House approved legislation to expedite the approval of liquefied natural gas exports.

The Senate held a hearing on a similar bill on Thursday.

The White House has not yet issued a formal veto threat on the legislation. However Administration officials contacted the media to indicate that the bill is not needed.

On Wednesday, the House voted 277-133 to approve the “LNG Permitting Certainty and Transparency Act” (H.R. 351). The legislation would set a time limit on the Department of Energy’s review of applications to export liquefied natural gas (LNG). Under Section 3 of the Natural Gas Act, the Department must determine whether proposed exports to countries with which the U.S. does not have a free trade agreement are in the “national interest.” H.R. 351 requires the Department to “issue a final decision on any application for the authorization to export natural gas under

section 3 of the Natural Gas Act” within 30 days of “the conclusion of the review to site, construct, expand, or operate the LNG facilities required by the National Environmental Policy Act of 1969.” In his remarks during the House floor debate, Energy and Commerce Committee Ranking Member Frank Pallone Jr. (D-NJ) questioned the need for the legislation, noting that the Department of Energy has been “rapidly issu[ing] decisions” and has “moved aggressively.” He warned that “becoming the world’s largest exporter of natural gas is not something we should do lightly.” Energy and Power Subcommittee Chairman Ed Whitfield (R-KY) noted that the “National Association of Manufacturers…urges Members to support H.R. 351.” He added that, in the legislation, “we’re not dictating what that decision should be…we’re just saying you need to make the decision sooner.” Whitfield declared that the legislation “will create jobs” and “will encourage expansion of more natural gas production.” Representative John Garamendi (D-CA) offered a motion to recommit the bill, which would have modified the legislation to: bar exports to state sponsors of terrorism; and ensure the use of U.S. built and crewed ships in transporting exports. Garamendi asserted that “shipbuilding is also a national strategic asset” and “America’s mariners…are also a strategic asset.” Whitfield spoke in opposition to Garamendi’s motion. He said he is confident that the Department of Energy, under current law, would deny any applications to export natural gas to state sponsors of terrorism. He also remarked that the requirement for U.S. built and crewed ships raises issues that are much


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broader than H.R. 351, and should be considered separately. The House defeated the motion to recommit by a 174-237 vote. The White House has not issued a formal Statement of Administration Policy regarding the legislation, the usual vehicle by which the President signals his intent to veto a bill. However The Hill published a report on Wednesday morning, which quoted a White House official as asserting that the Department of Energy’s LNG export review “process is working well, and we don’t believe this legislation is necessary.” The Senate Energy and Natural Resources Committee held a hearing on January 28 on similar legislation. The hearing focused on Senator John Barrasso’s (R-WY) “LNG Permitting Certainty and Transparency Act” (S. 33). The bill would require the Department of Energy to issue a decision on an application for authorization to export natural gas within 45 days after the conclusion of a National Environmental Policy Act (NEPA) review by the Federal Energy Regulatory Commission (FERC) or U.S. Maritime Administration (MARAD). Assistant Secretary of Energy for Fossil Energy Christopher Smith provided testimony during the hearing. When asked about S. 33, he indicated it is not needed, but also told the Committee that the Department would be able to comply with the letter and spirit of the legislation if it is passed in its current form.

Upcoming Hearings and Events February 3 Energy and Transportation: The House Transportation and Infrastructure Committee’s Railroads, Pipelines and Hazardous Materials

Subcommittee will hold a hearing on “How the Changing Energy Markets Will Affect U.S. Transportation”. February 3-6 Energy Conference: The National Association of State Energy Officials (NASEO) will hold its Energy Policy Outlook Conference. February 4 Regulation of Wetlands: The House Transportation and Infrastructure Committee and the Senate Environment and Public Works Committee will hold a joint hearing on the “Impacts of the Proposed Waters of the United States Rule on State and Local Governments”. February 26 Forest Service Budget: The Senate Energy and Natural Resources Committee will hold a hearing on the Forest Service’s budget for Fiscal Year 2016. For more information about energy and environment issues you may email or call Frank Vlossak at 202-659-8201. Laura Simmons, Marc Pitarresi and Lucas Rogers contributed to this report. Updates on energy and environment issues are available during the week on twitter. DEFENSE FY 2016 DOD Budget Request Details Divulged Key Points:

Once again the Obama Administration and DOD will submit a budget request above the spending caps set in the Budget Control Act of 2011

However, the OCO request would fall $14 billion


http://clerk.house.gov/cgi-bin/vote.asp?year=2015&rollnumber=49

http://thehill.com/policy/energy-environment/230972-white-house-to-congress-we-dont-legislation-expediting-gas-exports

http://www.energy.senate.gov/public/index.cfm/hearings-and-business-meetings?ID=4cd924a9-37a2-4251-8e54-fd8d85a7f522

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http://transportation.house.gov/calendar/eventsingle.aspx?EventID=398580

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This week, sources inside the Department of Defense (DOD) leaked additional details on the Obama Administration’s FY 2016 DOD budget request ahead of the official February 2 release. Notably, the DOD will allegedly ask Congress to provide a base budget of $534.3 billion and Overseas Contingency Operations (OCO) funding of $50.9 billion. This base budget request would exceed the projected cap on total defense appropriations for FY 2016 of $523 billion that includes funding for other departments and agencies such as the Department of Homeland Security’s national security activities. It should be noted that in recent years, the DOD has received 95% of defense appropriations (i.e. so-called 050 budget activities), meaning that if the enacted level of FY 2016 appropriations for the DOD adheres to the spending cap, the DOD would receive roughly $497 billion for its base budget in addition to OCO funds, which are not subject to the spending caps. Additionally, the DOD would allegedly request $209.8 billion for Operations and Maintenance accounts, $107.7 billion for Procurement accounts, and $69.8 billion for Research, Testing, Development, and Evaluation accounts. The Navy would request $11.6 billion for Shipbuilding accounts, including three Littoral Combat Ships (LCS) and two Virginia-class submarines. Additionally, $1.4 billion would be requested for Ohio-class replacement submarines, $3 billion for the KC-46A air refueling tanker program, and $1.2 billion for the next-generation long-range bomber. Once again, the DOD would reportedly request changes to military compensation programs as cost savings measures, including increasing some TRICARE co-pays for some pharmacy drugs, implementing annual fees on TRICARE-for-Life coverage, and reduced housing allowances.

Service Chiefs Call For Sequestration Relief Key Points:

Members and witnesses agreed that the lower spending caps triggered by the Super Committee’s failure to craft a package of $1.2 trillion in savings in 2011 has hurt the DOD and will continue to impair its ability to respond to a challenging global threat environment

There was also agreement that spending caps should be lifted, but not much discussion as to how this should be accomplished

On January 28, the Senate Armed Services Committee held a hearing titled the “Impact of the Budget Control Act of 2011 and Sequestration on National Security.” The Committee discussed how the budgetary caps put in place under the Budget Control Act of 2011 (BCA) will drastically impact military readiness, modernization efforts, and the ability to recruit and retain top personnel talent.

Chairman John McCain (R-AZ) stated that the current budget trajectory would cut $1 trillion from the defense budget by the year 2021, despite the ever-increasing number of global threats. He expressed frustration that sequestration remains a problem despite the fact that it is almost universally disliked and its disruption of a regular budget process. He stressed the importance of budget regularity for the purposes of supporting sustained military operations. He stated that continued arbitrary defense cuts “will harm [the] military’s ability to keep [citizens] safe.” He noted that sequestration caps have an effect that will be felt for years after the cuts are implemented. McCain asserted that the spending caps are delaying needed improvements to infrastructure, equipment, operations training, and recruitment and retention of talented service members.


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Ranking Member Jack Reed (D-RI) stated that “every senior civilian and military leader in the Department of Defense (DOD)” has said that the U.S. will be unable to meet its national defense strategy without an unacceptable level of risk if defense budgets continue to be capped at sequestration levels. He said that the BCA will severely limit the ability of the military to complete operations against existing and new threats. He stressed that sequestration places a significant strain on military readiness, modernization and the welfare of our service members and their families. Army Chief Of Staff General Raymond Odierno stated that over the last three years, the Army’s active end-strength has been reduced by 80,000 soldiers and its reserve component by 18,000. He added that delays in upgrading important infrastructure and information technology (IT) platforms have reduced military readiness to its lowest level in 20 years. He said that the Army would have to reduce the number of active duty solider by 70,000 and its reserve soldiers by 10,000 should sequestration or sequester funding levels return in FY 2016. He emphasized that every acquisition program would have to be ended, restructured, or delayed if the current budget caps are not adjusted. He noted that sequestration increases the cost of the budgeting process and makes spending the limited resources less efficient. Chief of Naval Operations Admiral Jonathan Greenert stated that, due to the impact of sequestration in 2013, the Navy’s Contingency Response Force is at one-third strength. He said the budget shortfall has degraded fleet readiness to a level that will take until approximately FY 2018 for the maintenance backlog to clear. He stressed that reduced budgets have forced the Navy to slow its modernization efforts scheduled in the current

defense plan, reduce procurement of equipment and systems, and delayed needed upgrades to onshore infrastructure. He said continued sequestration level budgets put the Navy in a position where it will not be able to complete operations on the scale currently being undertaken. Air Force Chief Of Staff General Mark Welsh III stated that the Air Force is “now the smallest [it has] ever been.” He emphasized that the Air Force has not additional capacity to take on new challenges and warned that it can no longer cut force structure to pay to maintain readiness and modernization. He stressed that the impact of a sequestration level budget would be “significant.” He said the current readiness of combat squads is improving but still is below 50 percent, while sequestration would reverse the progressing trend. He stated that the planes and equipment being used by the Air Force are older than ever, a result of years of deferred purchases. Marine Corps Commandant General Joseph F. Dunford, Jr. stated that the Marine Corps has prioritized the readiness of its forward deployed forces during the current environment of fiscal uncertainty. He explained that this was done at the cost of home station readiness, modernization, infrastructure sustainment, and quality of life programs. He reiterated that investment in modernization is “at historically low levels.” He emphasized that the Marine Corps will not be able to meet its Operational Requirements of the Defense Strategic Guidance under the BCA, saying the reduction in the number of active duty battalions and squadrons could jeopardize its ability to support even a single, major contingency operation.






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Work Speech on Offset Strategy Key Points:

The Deputy Secretary of Defense provides more detail on how the DOD will seek to foster innovation to maintain U.S. technological superiority during a time of declining funding

Work identified challenges posed by tempo, multiple adversaries, and the dispersion of cutting edge R&D among multiple stakeholders

On January 28, Deputy Secretary of Defense Robert Work made remarks at the Center for a New American Security regarding potential complications facing the Department of Defense (DOD) as it develops and implement its recently announced third offset strategy, the Defense Innovation Initiative. Work claimed that the U.S. military’s “long comfortable technological edge…[is] steadily eroding.” He conceded that “we still believe we have a margin, but the margin is steadily eroding and it’s making us uncomfortable…[and] [w]e believe this is one of the greatest strategic challenges facing the Department.” Work asserted that “[w]hile the United States and our closest allies fought two lengthy wars over the past 13 years, the rest of the world and our potential adversaries were seeing how we operated…looked at our advantages…studied them….analyzed them…[and] looked for weaknesses.” He asserted that “then they set about devising ways to counter our technological over-match…[and] across the board, we see rapid developments in nuclear weapons, modernization of nuclear weapons; new anti-ship, anti-air missiles; long-range strike missiles; counter-space capabilities; cyber capabilities; electronic warfare capabilities; special operations capabilities that are operated at the lower end….designed to counter our traditional

military strengths and our preferred way of operating.” Work noted that “to maintain our warfighting edge, we’re trying to address our perceived erosion of technological superiority with the Defense Innovation Initiative and the third offset strategy…an ambitious Department-wide effort to identify and invest in innovative ways to sustain and advance America’s military dominance for the 21st century.” He stated that “[i]t will put new resources behind innovation and you will see that in our budget…[but] also accounts for today’s fiscal realities by focusing our investments that will sharpen our military edge even as we have to contend with fewer resources.” Work remarked that “as you will see when we drop our budget on Tuesday, it seeks to reverse this decline in defense spending in the past five years…[and] works to address the under-investment in new technologies by making targeted investments in those areas.” He said that “we make significant investments in our nuclear enterprise; new space capabilities; advanced sensors, communications and munitions for power projection in contested environments; missile defense; and cyber capabilities…[and] are also investing in promising new technologies, including unmanned undersea vehicles; advanced sea mines; high-speed strike weapons; advanced aeronautics; from new engines to new, different types of prototypes; electromagnetic rail guns; and high-energy lasers.” Work stated that “[t]here’s going to be three key differences between what is happening in this offset strategy and the earlier ones: [f]irst, it’s going to have a much more trying temporal component.” He stated that “[i]n 1975 and in the 1950s, we knew our adversary and we said “[w]e can pick something where we will have an enduring advantage.” Work stated that






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“we’ll be looking for promising technologies that we can do in what we call the FYDP, the future years defense program, generally about five years out…[and] [w]e’ll identify long-range advances that we can pull up and hopefully field in the ‘20s, and then we’ll plant the seeds for R&D, which will give us an advantage for the ‘30s.” Work stated that “[s]econd, we don’t face a single monolithic or implacable adversary like we did in the Cold War…[and] [w]e face multiple potential competitors, from small regional states like North Korea and Iran, to large advanced states like Russia and China, to non-state adversaries and actors with advanced capabilities.” He asserted that “the third big difference is that in the 1950s and the 1970s, generally these advances were military capabilities that were brought along by military labs…[b]ut now with robotics, autonomous operating guidance and control systems, visualization, biotechnology, miniaturization, advanced computing and big data, and additive manufacturing like 3D printing, all those are being driven by the commercial sector.” HASC DOD Logistics Hearing Key Points:

The House Armed Services Committee looks at potential reforms to acquisitions practices through the frame of maintaining the DOD”s technological edge

The Under Secretary of Defense charged with overseeing acquisitions shared his recommendations for any legislative fixes

On January 28, the House Armed Services Committee held a hearing titled “A Case for Reform: Improving DOD’s Ability to Respond to the Pace of Technological Change.”

Chairman Mac Thornberry (R-TX) said that the hearing would examine “technological superiority, how the U.S. is doing, and how we can ensure that we have the technological edge that we need for the years to come.” He said that the U.S. faces “a number of challenges…[o]ne of which is that we face more different kind of challenges than maybe we ever have before.” Thornberry claimed that “[a]nother [challenge] is that technology is moving incredibly quickly…[a]nd a third is that some potential adversaries or competitors are putting a lot of time, effort and money into creating vulnerabilities for us.” He added that “another challenge can be our own system…[a]nd so that’s part of the reason I think it’s important for us to look, as we have been this week, at what’s happening in the world and then look at what we can do to improve things.” Thornberry stated that “that’s part of the reason defense reform is going to be a significant part of our agenda.” Ranking Member Adam Smith (D-WA) stated that “[a]cquisition reform has always been a challenge at the Department of Defense (DOD)…[and] [w]e’re always seeking ways to improve it.” He said that “I think it’s particularly important in the environment that we find ourselves in, which combines two unfortunate elements…[o]ne, an expanding and very confusing threat environment.” Smith asserted that “[w]e cannot say that things are getting less threatening or we have fewer national security challenges in the world…[and] at the same time they are incredibly complex.” He claimed that “that is combined, of course, with shrinking budget and the challenges of sequestration and the challenges of the reductions in the budget.” Under Secretary of Defense for Acquisition, Technology, & Logistics Frank Kendall III remarked that “[w]e are currently close to


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issuing guidance implementing what we call Better Buying Power 3.0, released last year in draft.” He explained that “3.0 builds upon core aspects of earlier versions that emphasize strong performance incentives, competition and professionalism in our acquisition workforce, and close and continuous interaction of acquisition and requirements community, which is represented here today by General Ramsay, the J8 from the Joint Staff.” Kendall stated that “I am very concerned about the increasing risk of loss of U.S. military technological superiority” and summarized his suggestions that “could help the Department improve acquisition outcomes” including:

Number one and number one by a very wide margin, end the threat of sequestration.

Number two; continue to support the Defense Acquisition Workforce Development Fund.

Number three; work with the Department to simplify the rules we already have.

Number four; avoid highly restrictive rules that limit department freedom of action.

Number five; reduce the counterproductive incentive to obligate funds on a fixed schedule.

Number six; allow the department to hold a management reserve to apply to programs that realize risks.

Number seven, and I would use this as the other bookmark, if you will, to the set of inputs…[h]elp the department improve the professionalism of the government workforce.

Commission Releases Final Report on Military Compensation Key Points:

A key Commission has issued its final report on how the DOD should address increasing costs for compensation, possibly allowing Congress and the Administration to consider some changes to current policies

The most notable recommendation would replace pensions with a modern 401(k)-type plan, with the retention benefits of the current retirement annuity

On January 25, the Military Compensation and Retirement Modernization Commission (Commission) issued its final report with “specific recommendations to modernize pay and benefits of the Uniformed Services” for the President and Congress. A number of the recent Secretaries of Defense have pointed to the cost growth of compensation programs over the last few Administrations as unsustainable. However, many key Members of Congress have deferred addressing potential reforms to the compensation system for uniformed DOD personnel until the Commission issued its final report. However, the report may fail to generate action, particularly since last year, the House and Senate Armed Services Committees disagreed on whether the FY 2015 National Defense Authorization Act should include measures to reduce housing allowances and the subsidies for some pharmacy drugs. In November 2014, the Congressional Budget Office (CBO) issued a report on the DOD’s budget growth between 2000 and 2014 and found that “[t]he military personnel budget experienced the largest percentage increase of the four main budget categories CBO examined,” which excludes the DOD’s health programs that are appropriated under the


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Operations and Maintenance title. CBO stated that “[t]he increase in funding for military personnel, averaging 2.7 percent per year, accounted for about $45 billion of the $117 billion in real growth in DoD’s base budget, even though the number of military personnel in 2014 was slightly smaller than the number in 2000.” The Commission stated that “[t]his final report focuses on reforming compensation programs to improve Service members’ choice of and access to benefits…[and] [t]he recommendations contained within it enhance the flexibility of the compensation system for the Services, which have the responsibility to recruit and retain balanced forces and for Service members.” The Commission stated that “[t]he recommendations improve the cost-effectiveness of delivering high-quality benefits…[and] [w]ithin this framework, the report evaluates each program in light of key changes in the cultural, generational, and technological landscape since the advent of the All-Volunteer Force.” The Commission asserted that “[t]hough many programs continue to serve their intended purpose, several are duplicative, and many should be more responsive to the needs of the contemporary workforce from which the Services draw their personnel…[and] [b]ased on these findings, this report offers 15 recommendations that have one thing in common: these recommendations were formulated with the benefit to the Service members, and the families who support them, as a top priority.” The Commission issued these and other recommendations:

Help more Service members save for retirement earlier in their careers, leverage the retention power of traditional Uniformed Services

retirement, and give the Services greater flexibility to retain quality people in demanding career fields by implementing a modernized retirement system.

o This recommendation blends the recruiting benefits of a modern 401(k)-type plan, with the retention benefits of the current retirement annuity, lump sum career continuation pay, and retention bonuses paid at important career milestones in the lives of Service members.

o The Commission estimates that its retirement recommendation would reduce DOD budgetary costs by $6.1 billion during FY 2016–FY 2020 and result in annual steady-state savings of $1.9 billion by FY 2046.

Increase access, choice, and value of health care for active-duty family members, Reserve Component members, and retirees by allowing beneficiaries to choose from a selection of commercial insurance plans offered through a Department of Defense health benefit program.

o The Congress should replace the current health care program with a new system that offers beneficiaries a selection of commercial insurance plans. Costs of these plans should be offset for active-duty families with a new Basic Allowance for Health Care (BAHC) and a fund to lessen the burden of chronic and catastrophic conditions.

o The Commission estimates that its health benefit recommendation would reduce






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DOD budgetary costs by $26.5 billion during FY 2016–FY 2020 and result in annual steady-state savings of $6.7 billion by FY 2033.

Improve collaboration between Department of Defense and Veterans Affairs by enforcing coordination on electronic medical records, a uniform formulary for transitioning Service members, common services, and reimbursements.

o Yet there remain substantial opportunities for enterprisewide collaboration through standardization, elimination of barriers, and implementation of best practices. Differences in drug formularies for transitioning Service members continue to disrupt effective care. Several DOD–VA resource sharing projects have generated efficiencies for both organizations, but these efforts are mostly local, isolated arrangements. Medical information cannot yet be shared seamlessly between DOD and VA, hindering effective care for Service members and veterans. To resolve these issues, the current DOD–VA Joint Executive Committee should be strengthened with additional authorities and responsibilities to standardize and enforce collaboration between the organizations.

o The Commission estimates that its recommendation related to collaboration between DOD and VA would reduce annual

DOD budgetary costs and Federal outlays by reducing costs for electronic health record development and maintenance, as well as by increasing resource-sharing between the Departments.

Upcoming Hearings and Events February 3 Military Compensation and Retirement Modernization Commission: The Senate Armed Services Committee will hold a hearing to discuss the findings of the Military Compensation & Retirement Modernization Commission. Global Threat Assessment: The House Armed Services Committee will hold a hearing to discuss global threats to the United States. Wounded Warrior Program: The House Armed Services Committee will hold a hearing to discuss the Wounded Warrior Program. February 4 Secretary of Defense Nomination: The Senate Armed Services Committee will hold a hearing to discuss the nominee for Secretary of Defense. Military Compensation and Retirement Modernization Commission: The House Armed Services Committee will hold a hearing to discuss the findings of the Military Compensation & Retirement Modernization Commission. February 12 Emerging Threats and Technologies: The House Homeland Security Committee will hold a hearing to discuss emerging threats and technologies to protect the homeland.


http://www.armed-services.senate.gov/hearings/15-02-03-findings-of-the-military-compensation-and_retirement-modernization-commission

http://www.armed-services.senate.gov/hearings/15-02-04-nomination

http://homeland.house.gov/hearing/subcommittee-hearing-emerging-threats-and-technologies-protect-homeland





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For more information on defense issues you may email or call Michael Kans at 202-659-8201. Greg Frink contributed to this section. HEALTH House Set to Vote on ACA Repeal Legislation; Senate Marks Up Heroes Legislation Key Points

GOP-controlled Congress continues consideration of ACA-related bills

House Majority Leader Kevin McCarthy (R-CA) announced next week that the House will vote on H.R. 596, “To repeal the Patient Protection and Affordable Care Act and health care related provisions in the Health Care and Education Reconciliation Act of 2010, and for other purposes.” The legislation, sponsored by Representative Bradley Byrne (R-AL), would repeal the Affordable Care Act (ACA), and also includes instructions for the House Education and Workforce, House Energy and Commerce, and House Ways and Means Committees to report replacement health care reform legislation within the jurisdiction of their respective Committees. Republicans voted numerous times in the 112th and 113th Congresses to repeal the ACA, but this represents the first vote in the new Congress. The House Rules Committee is scheduled to meet on Monday afternoon to report a rule for consideration of the bill. The vote on full repeal comes after the House sent several ACA modification bills to the Senate earlier this month, including legislation to change the law’s definition of a full-time work week from 30 hours to 40 hours, and the “Hire More Heroes Act” (H.R. 22), a bill to exempt employees receiving medical care through the VA or the DOD from counting towards the number of

employees in a business for determining the employer mandate under the ACA. The Senate Finance Committee convened its first markup of 2015 to consider the House-passed “Hire More Heroes Act.” The legislation was reported favorably by a vote of 26-0. The legislation is on track to be sent to the President in the coming weeks, and it is expected to be enacted into law. Senate Finance Committee Chairman Orrin Hatch (R-UT) also introduced legislation this week with Senate HELP Committee Chairman Lamar Alexander (R-TN) and 26 Republican co-sponsors to repeal the ACA’s employer mandate. The “American Job Protection Act” (S. 305), would repeal the requirement in the health reform law requiring businesses with 50 more employees to offer health insurance to full-time employees or face penalties. House Energy and Commerce Republicans Unveil 21st Century Cures Discussion Draft Key Points

Discussion draft includes five titles with numerous ideas designed to accelerate the development and delivery of cures

Committee Republicans pledge “aggressive schedule” in coming months; hope to send President bill before the end of the year

Senators Alexander, Burr release report on accelerating medical innovation

On January 27, the House Energy & Commerce Committee released a 393-page discussion draft of 21st Century Cures legislation, which was accompanied by a white paper providing further background on the five titles of the bill: (1) Putting Patients First by Incorporating their Perspectives into the Regulatory Process and Addressing Unmet Medical Needs; (2) Building the Foundation for 21st Century Medicine, Including Helping




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Young Scientists; (3) Modernizing Clinical Trials; (4) Accelerating the Discovery, Development, and Delivery Cycle and Continuing 21st Century Innovation at NIH, FDA, CDC, and CMS; and (5) Modernizing Medical Product Regulation. In a press release, the Committee said the product was a result of input received in response to the “five white papers and at the eight hearings and numerous roundtables” convened since the initiative was launched in 2014. The Committee is seeking further input on the proposals outlined in the discussion draft, and announced it will “continue on an aggressive schedule to introduce 21st Century Cures legislation and ultimately send a bill to President Barack Obama’s desk for signature by the end of the year.” House Energy and Commerce Committee Chairman Fred Upton (R-MI) issued a release stating that the “ideas outlined in the discussion document represent an important milestone – a critical first step in the legislative process.” The draft was released without the endorsement of Representative Diana DeGette (D-CO), the co-founder of the 21st Century Cures initiative. In a statement, DeGette expressed confidence that Congress could reach “bipartisan consensus to help advance biomedical research and cures.” Meanwhile, House Energy and Commerce Committee Ranking Member Frank Pallone Jr. (D-NJ) expressed “disappointment” that the draft “does not reflect true bipartisan collaboration.” He went on to express concerns that the craft could “create more problems for our health care system than it solves,” and said that it fails to include additional funding for basic research at the NIH. In a related development, Senate HELP Committee Chairman Lamar Alexander (R-TN)

and Senator Richard Burr (R-NC) released a report entitled, “Innovation for Healthier Americans.” The report seeks to examine and improve the process from “discovery to approval,” with the stated goal of bipartisan work with Members of the HELP Committee to “align public policies to support accelerating medical innovation and patient access to important medicines and medical technologies.” Alexander and Burr intend to produce bipartisan legislation in the 114th Congress, and have asked interested stakeholders to submit comments by February 23. House Panel Holds Hearing on Public Health Legislation Key Points

Health Subcommittee examines NASPER reauthorization, trauma bills, and other public health legislation

Generally, bills enjoy bipartisan support from Subcommittee Members

On January 27, the House Energy and Commerce Committee’s Health Subcommittee held a hearing to examine several public health bills. Specific proposals discussed at the hearing included: (1) the Improving Regulatory Transparency for New Medical Therapies Act; (2) the Veteran Emergency Medical Technician Support Act; (3) the National All Schedules Prescription Electronic Reporting (NASPER) Reauthorization Act; (4) the Ensuring Patient Access and Effective Drug Enforcement Act; (5) the Trauma Systems and Regionalization of Emergency Care Reauthorization Act; and (6) the Access to Life-Saving Trauma Care for All Americans Act. Many Republicans and Democratic Members present at the hearing expressed support for the bills being discussed before the Committee.


http://upton.house.gov/news/documentsingle.aspx?DocumentID=398409

http://degette.house.gov/media-center/press-releases/degette-statement-on-release-of-potential-policy-proposals-by-chairman

http://democrats.energycommerce.house.gov/index.php?q=news/pallone-statement-on-release-of-upton-draft-on-21st-century-cures

http://www.help.senate.gov/imo/media/Innovation_for_Healthier_Americans.pdf

http://energycommerce.house.gov/hearing/examining-public-health-legislation-help-patients-and-local-communities#video





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In particular, Members emphasized the importance of reauthorizing NASPER due to the role it plays in combatting opioid and prescription drug abuse. Upcoming Hearings and Meetings February 3 Influenza: The Oversight and Investigations Subcommittee of House Energy and Commerce Committee will hold a hearing on public health response efforts to influenza and the effectiveness of vaccines and anti-viral drugs. February 4 HHS Fiscal 2016 Budget Request: The Senate Finance Committee will hold a hearing to consider the Obama administration's fiscal 2016 budget request for the Department of Health and Human Services. For more information about healthcare issues you may email or call Matthew Hoekstra or George Olsen at 202-659-8201. TRANSPORTATION AND INFRASTRUCTURE Senate Commerce Committee Looks At Freight Rail Issues Key Points:

Members and witnesses discussed the pending PTC implementation deadline and many asserted that most entities will not meet the required deployment

Questions were raised about the timing and contents of the DOT’s crude-by-rail regulation

On January 28, the Senate Commerce, Science, and Transportation Committee held a hearing entitled “Freight Rail Transportation: Enhancing Safety, Efficiency, and Commerce.”

Topics discussed in the hearing included: (1) short line railroads; (2) freight rail service; (3) Positive Train Control; (4) the Port of Miami; (5) crude-by-rail shipments; (6) the Freight Mobility Strategic Investment Board; (7) Revenue Adequacy Standards; (8) the Keystone XL pipeline; and (9) worker safety. Chairman John Thune (R-SD) stated that freight rail delays in 2013 and 2014 highlighted how important rail service is to the U.S. economy. He said delays extended across the country impact every shipping sector and industry. He noted that freight rail moves roughly 40 tons per person each year. He said the private infrastructure that makes up the U.S. freight rail system is costly, requiring ongoing maintenance and investment. He noted that Class I railroads and short lines are facing increasing demands for prompt, reliable, and safe service. He explained that in 2014 freight traffic increased nearly five percent over 2013 levels, stressing the need to seek solutions that foster an even stronger freight rail network to meet this increasing demand. Thune indicated the Federal Railroad Administration (FRA) has proposed or finalized over 15 new freight rail safety rules since the passage of the Rail Safety Improvement Act of 2008, many of which will take effect in 2015. Thune stated the Positive Train Control (PTC) mandate is “looming” and the Department of Transportation (DOT) has announced that it expects a crude-by-rail regulation to be published around May 2015. He asserted the PTC deadline remains unattainable, despite the $5 billion that railroads have invested in PTC. Ranking Member Bill Nelson (D-FL) noted railroad was crucial to the development of Florida. He said the DOT estimates that the tonnage of freight moving by rail will increase by 88 percent by 2035. He asserted improving the railroad network requires immediate action.



http://www.commerce.senate.gov/public/index.cfm?p=Hearings&ContentRecord_id=f7f97386-494f-4a18-a6c1-ae0c39ea97dd&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=b06c39af-e033-4cba-9221-de668ca1978a

http://www.commerce.senate.gov/public/index.cfm?p=Hearings&ContentRecord_id=f7f97386-494f-4a18-a6c1-ae0c39ea97dd&Statement_id=afd52aef-6eb2-418b-947b-16dd759d9a4a&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=b06c39af-e033-4cba-9221-de668ca1978a&MonthDisplay=1&YearDisplay=2015

http://www.commerce.senate.gov/public/index.cfm?p=Hearings&ContentRecord_id=f7f97386-494f-4a18-a6c1-ae0c39ea97dd&Statement_id=02d3ea34-ab82-49b4-a593-8db59bbf9f93&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=b06c39af-e033-4cba-9221-de668ca1978a&MonthDisplay=1&YearDisplay=2015





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He stated railroads have invested record amounts to expand capacity and hire additional crewmembers. He said PTC will make the already safe rail industry even safer. Thune asked how short line railroads manage service with Class I railroads. Genesee & Wyoming Railroad Services Chief Operating Officer Dave Brown stated Genesee & Wyoming Railroad Services is both a customer and partner of Class I railroads. He said they act as an extension of Class I railroads, helping them serve more remote areas. He explained that effectively running a short line railroad requires constant monitoring and adjustment. He stated there are differences between individual Class I railroads, but they are all working to enhance their capacity. Nelson asked what Congress can do to assist with the implementation of PTC. Lonegro replied that legislation extending the PTC deadline would be beneficial. He explained that in the next three years railroads will continue to invest in hardware deployment and the PTC software is not yet in its final form. He said laboratory and field testing is still needed to ensure PTC will be implemented safely and effectively. Senator Ed Markey (D-MA) stated the increase in oil shipments by rail has come with an increase in oil spills, noting that 2014 saw a record 141 unintentional releases. He said in 2013 a train derailed in Canada killing 47 people. He expressed concern about the DOT’s failure to adopt new rules to address the retirement of old DOT-111 tank cars that “clearly pose a danger to our citizens and communities.” He asked Brown and CSX Transportation Vice President Service Design Frank Lonegro what their companies are doing to address recent oil spills from their railcars. Brown replied that Genesee & Wyoming has

established safety precautions and protocols for hazardous materials, including enhanced infrastructure testing, track geometry testing, and increased inspections. Lonegro said understanding the volatility of the crude oil is important. Senator Jerry Moran (R-KS) asked whether increased shipment of crude oil by rail is crowding out other commodities. Brown stated in most cases different commodities are shipped in different types of railcars. Lonegro said the majority of crude oil tankers are owned by shippers rather than railroads. He explained there are multiple networks within the broader freight rail network but they all utilize the same crew base and track infrastructure, making it is difficult to give by priority to one commodity over another. Senate EPW Begins MAP-21 Reauthorization Key Points:

The Committee holds its first hearing on the next surface transportation reauthorization and Members focused on how to fund the next package with no clear consensus emerging

On January 28, the Senate Environment and Public Works held a hearing entitled “The Importance of MAP-21 Reauthorization: Federal and State Perspectives.” The hearing examined the need for Federal transportation infrastructure investments, the importance of passing a long-term MAP-21 reauthorization, and the threat that businesses, states, and workers face due to the impending insolvency of the Highway Trust Fund (HTF). Chairman James Inhofe (R-OK) asserted the government’s job is to defend America and support infrastructure. He pointed to the fact that there used to be a surplus in the HTF. He


http://www.epw.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=87a12004-0c9c-e220-a2bf-a528568fa847





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expressed support for “doing it right this time,” and passing a bill rather than simply extensions, observing the cost of extensions is “30 percent off the top.” Ranking Member Barbara Boxer (D-CA) stressed the importance of passing a multi-year HTF bill for the economy and jobs. She pointed to a record of bipartisanship on the issue. She called for funding a multi-year bill rather than simply passing an extension. She emphasized the HTF will be bankrupt as of May 31, 2015. She noted the deficit in the HTF is less than expected; it is $13 billion per year over six years. The Secretary of Transportation Anthony Foxx stressed the need for a new, multi-year transportation bill with funding growth and policy reforms focused on America’s future. He asserted the U.S. is behind in the race for transportation innovation. Foxx noted Congress has averted catastrophe with extensions, but emphasized the patches have not addressed the country’s needs. He asserted such short term measures are “killing the will to build” at the local level. He explained a substantially greater investment as well as investment over a substantial period of time is necessary. He also expressed support for streamlining the planning process, opening the door to private investment, strengthening the Buy America program, and ensuring the safety of Americans by obtaining the resources and authority to confront unanticipated threats. Inhofe asked what could be done to help projects get off the ground quickly. Foxx replied implementing concurrent reviews in the permitting process. He pointed to the project of the Tappan Zee Bridge, where concurrent reviews reduced the permitting process from five years to eighteen months. He asserted concurrent reviews do not jeopardize the environment.

Boxer asked what is happening on the ground, asserting the government has failed to give certainty to the process of building projects. She noted Tennessee and Arkansas have already put off tens of millions of dollars of projects due to the uncertainty. She contended the passing of extensions has been a disaster. Foxx replied the crisis is worse than many Americans realize. He noted the height of construction season will occur just as the funding extension will run out. He said from a timing perspective, the problem will occur before May 31, as states will pull back on their projects before then. Senator David Vitter (R-LA) observed this committee can pass the bill, but the Senate Finance Committee has control over the financing. He called for having discussions about financing in a realistic, bipartisan way. He stressed the importance of finding common ground, explaining he believes it can be found in three funding areas: the traditional gas tax; tax reform, including business tax reform and repatriation; and domestic energy production with the additional revenue dedicated to the HTF. He asked what the Administration is doing to explore those three categories. Foxx replied the Administration has put forward a proposal to use pro-growth business tax reform to fund infrastructure improvements. He asserted there should be a conversation about “what number we’re trying to get to and what it is going to get us.” Senator Tom Carper (D-DE) asserted a fully funded, robust transportation plan would put many people back to work. He pointed to the “all of the above” approach to energy policy and called for adopting such an approach in transportation. He raised the issue of user fees, noting costs have all gone up, but gas taxes are not producing adequate revenue. He asked how to find savings to offset user fees. Foxx replied






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project delivery work would save money, but it must be done in a way that does not compromise the environment. He also said if projects are completed faster, the lower the costs will be. Infrastructure Bills Introduced Key Points:

Three bills to expand the funding of surface transportation and infrastructure programs were released this week, two of which are predicated on using revenue from repatriation to address HTF shortfalls

This week, three bills were introduced in the new Congress that may contribute to the debate on the next surface transportation reauthorization. One of the bills is notable for its size and scope which is beyond any of the recent reauthorizations and will serve as an outside marker for those who favor a dramatic increase in infrastructure funding. The second would increase funding for surface transportation and other infrastructure programs through the sale of low-yield federal infrastructure bonds that would be purchased by multinational companies who would, in turn, be able to repatriate, on a one-time only basis, foreign deferred earnings tax free at a ratio of approximately $4.00 for every $1.00 of infrastructure bonds they purchase in a “reverse Dutch Auction” process. And, the third would also allow multinationals to repatriate some foreign earnings at 6.5% rate and would use the proceeds to supplement Highway Trust Fund (HTF) revenues. Rebuild America Act Senate Budget Committee Ranking Member Bernie Sanders (I-VT) introduced the “Rebuild America Act” that would “make a historic one-trillion dollar investment over five years to

repair and modernize the physical infrastructure that our economy depends on” according to a summary. He explained that the package would “make[] targeted investments in roads, bridges, transit, passenger and freight rail, water infrastructure, marine ports and inland waterways, national parks, municipal broadband and the electric grid.” However, Sanders did not include any detail on how the package would be paid for. Sanders explained that his package would do the following:

[I]nvest $735 billion to repair our roads, bridges and transit systems:

o Highway Trust Fund: A cornerstone of this bill, the Trust Fund will receive an additional $75 billion a year for eight years, so states can address the backlog of projects to fix our crumbling roads, bridges and transit.

o National Infrastructure Bank: Capitalized with $5 billion a year, the NIB will leverage enough private capital to finance $250 billion in transportation, energy, environmental and telecommunications projects.

o Transportation Infrastructure Finance and Innovation: TIFIA will be expanded to provide credit assistance to almost $100 billion in surface transportation projects of national and regional significance.

o TIGER: $5 billion a year for this competitive program that funds transportation projects that create jobs in distressed areas, increase economic


http://www.budget.senate.gov/democratic/public/_cache/files/ff2a4550-88e3-4d62-a34c-721e691754d8/rebuild-america-act-draft-legislation.pdf

http://www.budget.senate.gov/democratic/public/_cache/files/ff2a4550-88e3-4d62-a34c-721e691754d8/rebuild-america-act-draft-legislation.pdf

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competitiveness, and promote livability, safety and innovation.

[I]nvest $15 billion a year to improve intercity passenger and freight rail, including high-speed so America can begin to catch up with the rest of the world.

[I]nvest an additional $2.5 billion a year to implement much-needed improvement projects at airports across the country, and $3.5 billion a year to accelerate deployment of NextGen satellite technology, greatly improving air travel safety and increase airport capacity.

[I]nvest $145 billion in water infrastructure over five years:

o Safe Drinking Water State Revolving Fund: $6 billion a year to improve the water systems that provide Americans with clean, safe drinking water.

o Clean Water State Revolving Fund: $6 billion a year for water pollution control and wastewater and stormwater infrastructure that protect our nation’s rivers and lakes.

o Water Infrastructure Finance and Innovation Act: $2 billion a year to finance large drinking water and wastewater infrastructure projects currently not eligible for SRF funding.

o Dams and Levees: $12 billion a year to upgrade high-hazard dams that provide flood control, drinking water, irrigation, hydropower, and recreation, and for levees that protect our cities and farms.

[I]nvest an additional $3 billion a year to improve inland waterways and coastal harbors and shipping channels

to move goods to, from and within our country more efficient.

[I]nvest $3 billion a year to improve our National Parks, Monuments, Heritage Areas and Landmarks for current and future generations to enjoy.

[I]nvest $10 billion a year for power transmission, distribution and modernization projects that will improve the reliability and resiliency of our ever more complex electric grid. It will also invest $5 billion a year to expand high-speed broadband networks into underserved and unserved areas, and to boost speeds and capacity in served areas.

Partnership to Build America Act Representatives John Delaney (D-MD) and Mike Fitzpatrick (R-PA) reintroduced their “Partnership to Build America Act,” (H.R. 413) that “creates a $50 billion dollar federal infrastructure fund that is capitalized by selling bonds to private multinational companies” as explained in a press release. They stated that “[i]n exchange for purchasing these bonds, the companies will be able to bring back a portion of their overseas earnings, one-time, tax free.” In the last Congress, Delaney and Fitzpatrick introduced the “Partnership to Build America Act” in the House, and Senators Michael Bennet (D-CO) and Roy Blunt (R-MO) released a companion bill in the Senate. However, Bennet and Blunt have not introduced the bill in this Congress. Additionally, the Obama Administration has favored using the proceeds of a repatriation to augment Highway Trust Fund revenues. Delaney and Fitzpatrick further explained the mechanics of how the bill would create the new American Infrastructure Fund and how it would be capitalized:


http://delaney.house.gov/news/press-releases/delaney-and-fitzpatrick-reintroduce-partnership-to-build-america-act-for-new





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The American Infrastructure Fund o The Partnership to Build

America Act creates the American Infrastructure Fund (AIF), a new entity to provide financing to state and local governments for new infrastructure projects.

o Transportation, energy, communications, water and education projects are eligible to receive AIF financing. Local governments would apply directly to the AIF for support.

o To encourage public-private partnerships 35% of AIF supported projects must have at least 10% of their financing be private debt or equity.

o The AIF will be capitalized by $50 billion in infrastructure bond sales and leveraged at a 15:1 ratio to provide up to $750 billion in loans or guarantees.

Infrastructure Bond Sale o Rather than using appropriated

funds out of the federal budget to establish the American Infrastructure Fund, the Partnership to Build America Act uses a bond sale.

o AIF bonds would have a 50 year term, pay a 1% fixed rate return and would not be guaranteed by the U.S. government. These bonds are not intended to be a good investment on their own and are transferable after purchase.

o To incentivize companies to purchase these bonds, U.S. companies would be allowed to repatriate a certain amount of their overseas earnings tax free

for every $1.00 they invest in the bonds. This multiplier will be set by a “reverse Dutch auction” – which allows the market to set the rate, ensuring that enough funds are raised to capitalize the fund.

o Assuming a 1:4 ratio is set by the auction; a company will be able to repatriate $4.00 tax-free for every $1 in AIF bonds they purchase.

Invest in Transportation Act of 2015 On January 29, Senator Rand Paul (R-KY) and Senate Environment and Public Works Committee Ranking Member Barbara Boxer (D-CA) released a white paper describing the “Invest in Transportation Act of 2015,” a bill that would also allow multinationals to repatriate foreign earnings at a favorable tax rate in order to provide additional funding for the HTF. Paul and Boxer provided the following summary:

Extends the HTF and prevents devastating cuts to transportation programs.

Allows companies to voluntarily return their foreign earnings to the United States at a tax rate of 6.5 percent. The rate is only for repatriations that exceed each company’s average repatriations in recent years, and funds must have been earned in 2015 or earlier. Companies have up to five years to complete the transfer.

Ensures that a portion of repatriated funds will be used for increased hiring, wages and pensions; R&D; environmental improvements; public-private partnerships; capital improvements; and acquisitions. No funds may be spent on increases in


http://www.boxer.senate.gov/press/related/BoxerPaulWhitePaper012915.pdf





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executive compensation, or on increases in shareholder dividends or stock buybacks for three years after the program ends.

All tax revenues from the repatriation program will be transferred into the HTF.

Companies that invert within 10 years of participating in this program must repay the tax incentive with interest.

Upcoming Hearings and Events February 3 Airport Access Control Measures: The House Homeland Security Committee will hold a hearing to discuss the effectiveness of the nation’s airport access control measures. Energy & Transportation Issues: The House Transportation & Infrastructure Committee will hold a hearing to discuss how changing energy markets affect transportation. February 4 Vessel Discharge Regulations: The Senate Commerce Committee will hold a hearing to discuss the impacts of vessel discharge regulations on the shipping and fishing industries. Proposed Waters Rule: The House Transportation & Infrastructure Committee will hold a hearing to discuss the impact of the proposed waters rule on state and local governments. February 5 Drinking Water Protection Act: The House Energy & Commerce Committee will hold a hearing to discuss the Drinking Water Protection Act.

For more information on transportation issues you may email or call Michael Kans at 202-659-8201. Hanna Laver and Lucas Rogers contributed to this section. TECHNOLOGY First Data Breach Hearing Held Key Points:

The new Subcommittee chair for the Energy and Commerce Committee with jurisdiction over data breaches signals his willingness to move a narrowly drawn bill with a flexible notification standard

Key Democrats signaled their willingness to work with Republicans on such a bill

On January 27, the House Energy and Commerce Committee’s Commerce, Manufacturing, and Trade Subcommittee held a hearing titled “What are the Elements of Sound Data Breach Legislation?” The Subcommittee discussed the circumstances under which a company should issue a data breach notification, whether harm always occurs during a data breach, and to what extent a federal standard should preempt existing state laws on breach notifications. Chairman Michael Burgess (R-TX) stated that it is his goal to create a single, federal standard on data security and breach notifications. He stressed that defensive measures to protect digital personal information must be adaptive, as data breaches are becoming inevitable. He questioned whether businesses were doing enough to prevent security breaches and argued that federal legislation should include “a single but flexible” data security requirement. He said a single requirement would give companies some confidence that their methods are sound in handling electronic data, while informing them that if they fail to keep up with standards and are not learning from other breaches, they


http://homeland.house.gov/hearing/subcommittee-hearing-review-access-control-measures-our-nation-s-airports


http://www.commerce.senate.gov/public/index.cfm?p=Hearings&ContentRecord_id=3d96309e-7f98-445b-9fdf-9483e042cd5e&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=b06c39af-e033-4cba-9221-de668ca1978a


http://energycommerce.house.gov/hearing/hr-212-drinking-water-protection-act


http://energycommerce.house.gov/hearing/what-are-elements-sound-data-breach-legislation

http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/114/Hearings/CMT/20150127/HHRG-114-IF17-IF03-MState-B001248-20150127.pdf





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will be subject to federal enforcement. He noted mutual interest from Congress and the Administration to enact national breach notification legislation. He emphasized the importance of focusing the Committee’s attention on this limited part of cybersecurity, leaving other sectors such as health care and financial services subject to existing regimes and regulators. Ranking Member Jan Schakowsky (D-IL) expressed support for data breach legislation that includes standards companies must meet for protecting consumer information and rules to define how individuals are notified about breaches when they occur. She emphasized that there are many important protections that have been put into place at the state level that should not be subverted by a weaker federal standard. She said that states’ attorneys general should have the authority to enforce cybersecurity breach laws. Full Committee Chairman Fred Upton (R-MI) reiterated the interest of both Congress and the President to pass data breach notification legislation. He said that the Committee will be examining “a series of issues relating to cybersecurity this new Congress” but stressed that the focus should be solely on data breach notifications before other concerns are tackled. He expressed support for Congress setting a single, national standard for data security and breach notification. He argued that a national standard allows businesses to focus on securing information and systems instead of trying to comply with different and unique state laws. Full Committee Ranking Member Frank Pallone, Jr. (D-NJ) emphasized that a federal law should not subvert data security laws already in place at the state level but rather work with existing laws to ensure a robust

minimum level of protections and requirements.

Burgess asked whether a single federal standard for data breaches should preempt state laws. Tech America Public Policy Executive Vice President Elizabeth Hyman contended that different state laws are often in conflict with each other, placing a burden on companies that do not have the in-house resources to meet the requirements of every state. She noted that this is an unsettled area, as new state laws will go into effect or are being considered in legislatures. Retail Industry Leaders Association Communications and Strategic Initiatives Executive Vice President Brian Dodge said a federal standard gives consumers a clear set of expectations for the protection of their personal information. Acxiom Corporation Chief Privacy Officer Jennifer Glasgow argued that most state breach notification legislation does not have a security requirement and that a strong federal standard would not weaken state laws. Cumberland School of Law Associate Professor Woodrow Hartzog said that preemption on a limited scale could be useful, recommending minimal preemption to move closer to a national standard while still keeping strong protections already in place. He argued that the differences between state laws is “a bit overstated” and questioned the burden that companies face in complying with multiple state laws. Schakowsky expressed concern about setting a notification requirement dependent on financial harm or the potential risk of harm. She asked if consumers could be harmed in ways other than economically. Hartzog replied that the harm trigger is “dubious” because the concept of harm is not defined. He contended that defining ‘harm’ around financial harm is too limiting when examining all of the harm data theft can cause. He noted that the burden


http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/114/Hearings/CMT/20150127/HHRG-114-IF17-IF03-MState-U000031-20150127.pdf





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of proof for harm based on a singular event can be difficult to directly prove. He said data can be used to deceive individuals and provide access to hackers through “human vulnerabilities.” He recommended that the standard should require notification for every data breach. Senate Committee Holds Hearing On Possible Information Sharing Bill Key Points:

The Senate Homeland Security Committee Chair and Ranking Member indicate their interest in crafting an information sharing bill in this Congress

Witnesses stressed the need for liability protection for companies authorized to share threat information

On January 28, the Senate Homeland Security and Governmental Affairs Committee held a hearing titled “Protecting America from Cyber Attacks: The Importance of Information Sharing.” The Committee discussed the circumstances under which a company should issue a data breach notification, whether harm always occurs during a data breach, and to what extent a federal standard should preempt existing state laws on breach notifications. Chairman Ron Johnson (R-WI) said the Committee has a goal of improving cybersecurity information sharing. Microsoft Corporation Trustworthy Computing Group Corporate Vice President Scott Charney stated that poorly constructed information sharing laws could discourage foreign entities from using U.S technologies. He said information sharing legislation must provide liability protections. He stated that information sharing legislation should not mandate one particular model and should allow for flexibility. He stated legislation should: (1)

be scoped to cover information that allows defenders to reasonably protect data; (2) should protect confidentiality by anonymizing data; and (3) recognize that companies have duties to their customers. FireEye Chief Security Strategist Richard Bejtlich suggested that the President’s proposal is compatible with this understanding. He stated that sharing threat intelligence refers to three cases: (1) from the government to the private sector; (2) within the private sector; and (3) from the private sector to the government. He said in the government-to-private scenario, he encourages officials to grant clearances to private security teams not working on government contracts. In the private-to-private case, he recommended creating information sharing groups. He said the private-to-government case is the most contentious for two reasons: (1) companies are reluctant to publicize security breaches, beyond what is necessary to comply with laws and standards; and (2) some privacy advocates believe that liability protection will let companies submit customer personal information to the government. He asserted that companies should not be held liable for voluntarily reporting incidents. Center for Democracy & Technology Freedom, Security & Technology Project Senior Counsel and Director Gregory Nojeim, Freedom stated that information sharing is an important component of an effective cybersecurity policy and must be accompanied by appropriate privacy protections at all levels. He said there are concerns that information sharing could evolve into a surveillance program. He stated that while current law authorizes providers to monitor their own systems and to voluntarily disclose communications necessary to protect their own systems, the law does not authorize service


http://www.hsgac.senate.gov/hearings/protecting-america-from-cyber-attacks-the-importance-of-information-sharing





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providers to make disclosures to other service providers or to the government to help protect the systems of other service providers. He suggested there may be a need for exceptions to the Wiretap Act and Electronic Communications Privacy Act to permit disclosures to others about specific attacks. He stated the information shared should be narrowly defined. He said he has concerns with the White House’s proposal, but that it is an improvement over the Cybersecurity Information Sharing Act (CISA). Ranking Member Tom Carper (D-DE) said in the 113th Congress the Senate passed “three or four” modest bills to enhance the Department of Homeland Security’s (DHS) role in protecting cybersecurity. He stated that information sharing legislation was passed by the Committee but not the full Senate. He said the Committee will continue to focus on this issue in the 114th Congress. He asked the witnesses for their views on the White House proposal, the Cybersecurity Information Sharing Act and the legislation passed by the House. American Express Executive Vice President and Chief Information Officer Marc Gordon said the bills had different proposals on real-time information sharing, which he emphasized is very important. He stressed the need to facilitate company-to-company sharing through liability protection. He stated that the legislation must facilitate acting within one’s own network. He emphasized that information sharing must be “bidirectional.” FTC’s Internet of Things Report Key Points:

FTC approves and releases a staff report that calls on the developers and manufacturers of IoT devices to implement reasonable security

FTC staff did not see the need for IoT specific legislation at this time but did call on Congress to pass data security and privacy legislation

On January 27, the Federal Trade Commission (FTC or Commission) voted 4-1 to issue a staff report titled “Internet of Things: Privacy & Security in a Connected World,” in which the FTC stated its staff “recommend a series of concrete steps that businesses can take to enhance and protect consumers’ privacy and security, as Americans start to reap the benefits from a growing world of Internet-connected devices” according to the FTC’s press release. FTC staff noted that “the FTC hosted a workshop on November 19, 2013 – titled The Internet of Things (IoT): Privacy and Security in a Connected World…[and] [t]his report summarizes the workshop and provides staff’s recommendations in this area.” FTC staff offered the following observations from the IoT Workshop:

There appeared to be widespread agreement that companies developing IoT products should implement reasonable security.

Although some participants expressed concern that requiring data minimization could curtail innovative uses of data, staff agrees with the participants who stated that companies should consider reasonably limiting their collection and retention of consumer data.

The Commission staff believes that consumer choice continues to play an important role in the IoT. Some participants suggested that offering notice and choice is challenging in the IoT because of the ubiquity of data collection and the practical obstacles to providing information without a user interface. However, staff believes that


http://www.ftc.gov/system/files/documents/reports/federal-trade-commission-staff-report-november-2013-workshop-entitled-internet-things-privacy/150127iotrpt.pdf

http://www.ftc.gov/system/files/documents/reports/federal-trade-commission-staff-report-november-2013-workshop-entitled-internet-things-privacy/150127iotrpt.pdf

http://www.ftc.gov/news-events/press-releases/2015/01/ftc-report-internet-things-urges-companies-adopt-best-practices





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providing notice and choice remains important.

Commission staff agrees with those commenters who stated that there is great potential for innovation in this area, and that IoT-specific legislation at this stage would be premature. Staff also agrees that development of self-regulatory programs designed for particular industries would be helpful as a means to encourage the adoption of privacy- and security-sensitive practices.

With respect to legislation, FTC Staff stated that it does not believe that the privacy and security risks, though real, need to be addressed through IoT-specific legislation at this time…[and] agrees that development of self-regulatory programs designed for particular industries would be helpful as a means to encourage the adoption of privacy- and security-sensitive practices.” Nonetheless, FTC staff asserted that “while IoT specific-legislation is not needed, the workshop provided further evidence that Congress should enact general data security legislation.” FTC staff stated that “[t]he Commission has continued to recommend that Congress enact strong, flexible, and technology-neutral legislation to strengthen the Commission’s existing data security enforcement tools and require companies to notify consumers when there is a security breach.” FTC staff noted its emphasis that “general technology-neutral data security legislation should protect against unauthorized access to both personal information and device functionality itself.” FTC staff contended that “the pervasiveness of information collection and use that the IoT makes possible reinforces the need for baseline privacy standards…[and] again recommends that Congress consider enacting broad-based (as opposed to IoT-specific) privacy

legislation.” FTC Staff stated that “[s]uch legislation should be flexible and technology-neutral, while also providing clear rules of the road for companies about such issues as when to provide privacy notices to consumers and offer them choices about data collection and use practices.” FTC staff noted that the “the Commission currently has authority to take action against some IoT-related practices, it cannot mandate certain basic privacy protections – such as privacy disclosures or consumer choice – absent a specific showing of deception or unfairness.” FTC staff claimed that “as demonstrated at the workshop, general privacy legislation could ensure that consumers’ data is protected, regardless of who is asking for it.” PCLOB Issues Assessment of Administration’s NSA Reform Efforts Key Points:

Government board calls on Administration and Congress to end bulk surveillance by NSA, some of which the Administration could achieve by executive action

The board released its assessment ahead of the Administration’s update on its efforts to implement the changes outlined by President Barack Obama in January 2014

On January 29, the Privacy and Civil Liberties Oversight Board (PCLOB or Board) issued its assessment “of the degree to which the President, Congress, and the Foreign Intelligence Surveillance Court (FISC) have implemented the recommendations made by the Board in” its reports “on the government’s Section 215 surveillance program and Section 702 surveillance program.” PCLOB’s assessment is being issued at a critical juncture as the Obama Administration is nearing a self-imposed deadline of early February to reveal Administration efforts to revamp the National


http://www.pclob.gov/library/Recommendations_Assessment-Report.pdf

http://www.pclob.gov/library/215-Report_on_the_Telephone_Records_Program.pdf

http://www.pclob.gov/library/702-Report.pdf

http://www.pclob.gov/library/702-Report.pdf





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Security Agency’s (NSA) bulk collection of telephony metadata. However, recent reports have indicated that a key Administration proposal to address privacy concerns may not be workable. Reportedly, the Administration is considering scrapping the plan to have telecommunications companies hold this bulk data, and the NSA would seek warrants to access the information it seeks. In its press release, the Board stated that “[k]ey findings include:

Overall, the Administration has accepted virtually all recommendations in the Board’s Section 702 report and has made substantial progress toward implementing many of them, while also accepting most of the recommendations in the Board’s Section 215 report.

The Administration has not implemented the Board’s recommendation to halt the NSA’s telephone records program, which it could do at any time without congressional involvement. Instead, the Administration has continued the program, with modifications, while seeking legislation to create a new system for government access to telephone records under Section 215.

The Administration has made substantial progress in implementing some of the Board’s recommendations regarding transparency.

The Administration has not yet developed, as the Board recommended, a methodology for gauging the value of its counterterrorism programs.

The PCLOB stated that overall it has found that the Administration and the Intelligence Community have been responsive to its recommendations. Moreover, the Board

asserted that “most recommendations directed at the Administration are still in the process of being implemented or have only been accepted in principle, without substantial progress yet made toward their implementation.” PCLOB stated that “Congress has not yet passed legislation to reform the operations of the FISC, as recommended by the Board, or to end the bulk collection of domestic telephone records by the National Security Administration…[but] [d]espite this inaction, the Administration has not followed the Board’s recommendation by unilaterally ending the telephone records program, which it could do at any time.” The Board “reiterate[d] its belief in the importance of ending the telephone records program and reforming the FISC, and it urges the prompt implementation of these recommendations.” Upcoming Hearings and Events February 4 Cybersecurity: The Senate Commerce, Science, & Transportation Committee will hold a hearing to discuss cybersecurity and private sector issues. February 11 Consumer Devices and Internet Analytics: The Senate Commerce, Science, & Transportation Committee will hold a hearing to discuss consumer devices and internet analytics. For more information on technology issues you may email or call Michael Kans at 202-659-8201. Greg Frink and Alex Barcham contributed to this section. This Week in Congress was written by Laura Simmons.


http://www.commerce.senate.gov/public/index.cfm?p=Hearings&ContentRecord_id=eb8d0d69-bf71-4052-9675-ad6d4c507782&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=b06c39af-e033-4cba-9221-de668ca1978a&MonthDisplay=2&YearDisplay=2015

http://www.commerce.senate.gov/public/index.cfm?p=Hearings&ContentRecord_id=d3e33bde-30fd-4899-b30d-906b47e117ca&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=b06c39af-e033-4cba-9221-de668ca1978a&MonthDisplay=2&YearDisplay=2015


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WJ Washington Update - NCPERS Washington Update 01-30-2015.pdf · that the deficit for this fiscal year will amount to $468 billion, slightly less than the deficit in 2014. Long-term,