Nov. 8, 2018

Members of the current 115th Congress are slated to return to Washington, D.C. next week for a lame-duck session. Number one on the legislative priority list for lawmakers will be completing the seven (of 12) fiscal year 2019 appropriations bills that have not been enacted into law.  The following spending bills have been finalized and are funded through September 30, 2019: Energy & Water; Military Construction-Veterans Affairs; Legislative Branch (via PL 115-244) and Labor-HHS-Education and Defense (via PL 115-245).

The remaining appropriations bills – which fund dozens of federal agencies – are operating under a short-term Continuing Resolution (CR) that runs through December 7. The CR covers the following spending legislation: Agriculture; Commerce-Justice-Science; Financial Services-General Government; Homeland Security; Interior-Environment; State-Foreign Operations; and, Transportation-HUD. The remaining bills cover dozens of programs that are of interest to California’s counties, ranging from local law enforcement to transportation to water resources. It remains to be seen whether Democrats will be open to negotiating a final budget deal or whether they’ll attempt to push the debate into 2019.

One issue that could lead to a budget stalemate is disagreement over funding for President Trump’s border wall. In fact, the president has threatened a government shutdown if lawmakers do not approve his $5 billion request.  While House Republicans have acquiesced to the administration’s demands, the Senate’s fiscal year 2019 Homeland Security spending legislation recommends only $1.6 billion for the wall.  The president’s request is a nonstarter for Democrats, particularly in the absence of a permanent solution to the expired Deferred Action for Childhood Arrivals (DACA) program.

In addition to action on fiscal year 2019 spending legislation, Congress will likely use the lame duck session to resume negotiations on a new Farm Bill reauthorization. The current authorization lapsed on September 30, although USDA has signaled that the legislation’s expiration will not directly impact farmers and ranchers in the short term. However, many agricultural interests have expressed concern that an extended delay in programmatic authority could negatively impact a variety of conservation and agriculture programs.

While there are several major sticking points to completing a new Farm Bill, disagreements over the future of the Supplemental Nutrition Assistance Program (SNAP/CalFRESH) have bogged down the negotiations. It should be noted that SNAP is an “appropriated entitlement,” meaning it does not rely on the Farm Bill for continuing programmatic authority.  Therefore, SNAP benefits have not been impacted by the lapse in authorization. 

Key Leadership and Committee Assignments for the 116th Congress

Aside from the impending legislative business, lawmakers in both chambers will gather for organizational meetings to select new party leaders and committee chairman for the upcoming 116th Congress. In the House, Congresswoman Pelosi has announced that she will run for speaker and is currently the odds-on favorite to remain at the helm of her party’s leadership in the new Congress. However, she may face a challenge from a contingent of younger Democrats, particularly Congressman Tim Ryan (D-OH), who want fresh new leadership.  Meanwhile, Representative Steny Hoyer (D-MD) is likely poised to become the new majority leader. 

On the Republican side of the aisle, current Majority Leader Kevin McCarthy (R-CA) has announced his intention to become the top Republican in 2019, although he will face a challenge from conservative Congressman Jim Jordan (R-OH), and perhaps others, to become House minority leader. Congressman Steve Scalise (R-LA) is widely expected take the number two spot in the leadership hierarchy.

Aside from choosing their party leaders, members of the House and Senate are slated to negotiate committee sizes, ratios, and membership for the new Congress over the course of the coming weeks.  The committee assignment process could continue into early 2019, particularly with a number of outstanding races not expected to be settled until later this year. However, it’s safe to assume that a new group of Democratic House chairmen will be eager to use their newly acquired gavels to advance their priorities.

It should be noted that most committee chairmen and ranking members are selected by their respective steering committees and then approved by the larger party caucuses. However, the change in party control will elevate most of the Democratic ranking members to chairmen in the House. Republicans, on the other hand, may see some competition for top committee posts due to a number of retirements, party-imposed term limits, and other factors.

Noted below are some of the key congressional committees that deal with issues of interest to CSAC.

House Appropriations Committee:  his important committee is responsible for allocating the actual funding for all federal programs, including transportation, health and human services, and criminal justice programs.  Congresswoman Nita Lowey (D-NY), who has been the ranking member on the committee since 2013, is poised to lead the panel in the new Congress. Current Appropriations Committee Chairman Rodney Frelinghuysen (R-NJ) did not seek reelection, so Republicans will have to select a new leader to serve as ranking member. The two most likely candidates are Representative Kay Granger (R-TX) and Tom Graves (R-GA).  Graves, who currently chairs the panel’s Financial Services Subcommittee, is considered more of a fiscally conservative firebrand. Granger, on the other hand, who currently heads the Defense Subcommittee, is known as more of a dealmaker.

House Energy and Commerce Committee: Among many other responsibilities, the committee has jurisdiction over various health-related programs, including the federal-state Medicaid program. Current Ranking Member Frank Pallone (D-NJ) is expected to become the next chairman of the committee, and current Chairman Greg Walden (R-OR) is expected to slot into the position of ranking member.

House Ways and Means Committee: This tax-writing committee has jurisdiction over certain health programs and family support issues.The Ways and Means Committee is expected to flip in the same way as the Energy and Commerce Committee, with current Ranking Member Richard Neal (D-MA) taking the helm and current Chairman Kevin Brady (R-TX) expected to become the panel’s top Republican.

House Judiciary Committee: Among other issues, this panel has programmatic jurisdiction over immigration policy, as well as criminal and juvenile justice legislation in the lower chamber.  Congressman Jerrold Nadler (D-NY), the top Democrat on the committee, will likely be the new chairman. Current Committee Chairman Bob Goodlatte (R-VA) did not seek reelection, setting off a battle for the top Republican post between Representatives Steve Chabot (R-OH), Doug Collins (R-GA), Jim Jordan (R-OH), Steve King (R-IA), and Tom Marino (R-PA).

House Transportation and Infrastructure Committee: This is the largest committee in the House of Representatives and handles virtually all transportation legislation in the lower chamber. Current Ranking Member Peter DeFazio (D-OR) is the presumptive candidate to lead the committee in the new Congress.  Current Chairman Bill Shuster (R-PA) did not seek reelection. He will likely be replaced by either Representative Sam Graves (R-MO) or Jeff Denham – if he ultimately prevails in his election – as the top Republican on the panel.

Senate Appropriations Committee: Like its House counterpart, the committee funds various federal programs, including transportation, health and human services and criminal justice programs.  Senator Dianne Feinstein (D-CA) serves on the committee and is a member of six of its subcommittees, including the Interior, Commerce-Justice-Science, Agriculture, Defense, and Transportation subcommittees. She is also currently the Ranking Member on the Energy and Water Subcommittee.  The committee chairmanship is expected to be retained by Senator Richard Shelby (R-AL), while Senator Patrick Leahy (D-VT) will return in his role as Vice Chairman.

Senate Finance Committee: One of the key committees in the Senate, the Finance Committee has jurisdiction over a whole host of health issues, including Medicaid and child welfare issues.  Chairman Orrin Hatch (R-UT) will retire at the end of the year, leaving open a top committee post. Judiciary Committee Chairman Chuck Grassley (R-IA) is the frontrunner to take the helm of the Finance Committee, although he has yet to announce his intentions. It should be noted that Grassley has previously chaired the committee and would only have two years left under Senate GOP rules to head the panel again.  Senator Ron Wyden (D-OR) is expected to hold on to his position as the panel’s top Democrat.

Senate Health, Education, Labor and Pensions Committee: This committee has jurisdiction over certain health programs and labor issues.  During the past few years, the committee has operated in a bipartisan fashion and is expected to continue to do so in the 116th Congress.  Senator Lamar Alexander (R-TN) is largely expected to continue on as chairman, and Senator Patty Murray (D-WA) is expected to stay on as ranking member.

Senate Judiciary Committee: This committee handles virtually the same issues as its House counterpart.  It is also responsible for filling judicial vacancies, including the Supreme Court. There could be changes at the top if Chairman Grassley decides to pursue the Senate Finance Committee gavel in the new Congress. It’s unclear who would replace him, although Senators Lindsey Graham (R-SC), John Cornyn (R-TX), and Mike Lee (R-UT) are early contenders.  Senator Feinstein is expected to stay on as the panel’s ranking member. 

Senate Environment and Public Works (EPW) Committee: Among other things, the committee has jurisdiction over a number of transportation programs, as well as the nation’s environmental policy. Senator John Barrasso (R-WY) is in line to retain his position atop the committee hierarchy, while Senator Tom Carper (D-DE) will remain the top Democrat on the panel.

FCC Proposes New Limitations on Local Cable Franchises

The Federal Communications Commission (FCC) recently issued a Second Further Notice of Proposed Rulemaking that would drastically reduce the compensation that local governments receive from cable companies for use of the public right-of-way. Pursuant to the Commission’s proposal, cable companies would be allowed to deduct the “fair market value” of most in-kind contributions from their franchise fee obligations. If adopted, the proposed rule would significantly reduce franchise fee revenues to local governments and severely limit or even eliminate local public, educational, and government (PEG) access channels in some jurisdictions.

Under current law, cable companies pay franchise fees equal to five percent of a cable system’s gross revenues in exchange for use of the public right-of-way. Counties and cities use these fees for the provision of important local services and to provide PEG programming, which offers a host of important community benefits, including televised government meetings, town hall meetings and public debates, and educational instruction.

The FCC’s proposal would allow any in-kind cable obligation – other than capital costs for PEG channels and cable build-out requirements – to be considered a “franchise fee.” Accordingly, the value of those obligations (including PEG channel capacity and complementary connections to school or government buildings) could be counted toward the aforementioned five-percent revenue cap. While it remains to be seen how the fair market value for such contributions would be calculated within any given jurisdiction, the anticipated result would be a significant reduction in – if not the entire elimination of – cable franchise fee revenues to local jurisdictions.

In addition, the FCC’s proposal, as drafted, could prohibit local governments from regulating the facilities and equipment used by cable operators in the provision of various non-cable services.  For example, as written, cable companies could potentially install small wireless/5G facilities with little or no public input and without having to meet any aesthetic or equipment-size requirements. This apparent carve-out for cable operators would present safety and liability challenges for counties and cities and would allow cable operators to avoid having to pay fair compensation to local governments for the use of publicly funded assets in the right of way.

Incidentally, by allowing cable operators to deploy non-cable facilities without being subject to any local oversight, the proposed rule would establish a regulatory scheme whereby cable companies would be held to a different standard than telecommunications providers. Pursuant to another recent FCC Order (WC Docket No. 17-84 and WT Docket No. 17-79), telecommunications companies remain subject to some degree of local discretion and public review as it pertains to the siting of wireless infrastructure; that particular Order, however, preempts state and local governance of small cell wireless infrastructure and lowers previous wireless deployment standards. Taken together, the two FCC actions described herein can be expected to result in a “race-to-the-bottom” deployment strategy for cable and telecommunications providers.

Counties interested in submitting comments to the FCC may do so at the following link: https://www.fcc.gov/ecfs/filings  Comments must be filed with the Commission by November 14.

IRS Publishes Proposed Opportunity Zone Rule

The Internal Revenue Service (IRS) recently published proposed regulations that provide draft guidance related to the new Opportunity Zone tax incentives that were created by the 2017 tax-reform Act (PL 115-97).  The regulations are intended to help investors and local governments determine the types of development that will be eligible for Opportunity Zone investments.  Additionally, the guidance includes a set of detailed tax and investment rules.

The Opportunity Zone program allows prospective investors to form private investment vehicles – known as qualified opportunity funds (QOFs) – to support development and redevelopment activities in certain low-income communities. Pursuant to the terms of last year’s tax law, Opportunity Zones retain their designation for 10 years. Investors may defer tax on almost any capital gain up to December 31, 2026,by making an appropriate investment in a zone, making an election after December 21, 2017, and by meeting other requirements.

The U.S. Department of the Treasury has certified as qualified Opportunity Zones 879 census tracts in the state of California.  For additional information on the state’s Opportunity Zones, please click on the following link: DOF – CA Opportunity Zones.

Comments on the proposed IRS regulations are due by December 28.