Enjoy Thanksgiving Because You May Not Be Home for Christmas!

It’s been a productive November, as congressional Republicans have quickly worked through the beginning stages of tax reform. The House passed last week its package, while the Senate Finance Committee approved its version along party lines. We expect that the Senate Budget Committee will soon combine the Senate Energy and Natural Resources Committee’s language together with the Senate Finance Committee package so that Senate Majority Leader Mitch McConnell (R-KY) can move the measure to the floor shortly after the Thanksgiving recess. Along with congressional Republican leadership, the White House has indicated that it hopes to finalize tax reform before the end of the year. With Congress now out for the holiday, we wish everyone a happy Thanksgiving, all the more because of the intense end of the year to do list that may keep us here over Christmas. Let’s take a look at what else still needs to be accomplished before we ring in the new year.

  • According to Congressional Research Service (CRS) analysis, if there is a continuing resolution (CR) to fund the government beyond December 8th, this CR – even if funded at current spending levels – could potentially trigger sequestration cuts. This means Congress will either need to pass a CR at lower funding levels to comply with the Budget Control Act (BCA) or pass a CR along with either: (1) legislation to delay when the Office of Management and Budget (OMB) will review spending levels to determine if a sequester is necessary; or (2) a deal to lift the BCA spending caps.
  • There has been some speculation that House and Senate leadership may have already reached a deal to lift the BCA caps on defense and non-defense spending. While no deal has been formally announced, this speculation may be due in part to the fact that:

o   House Speaker Paul Ryan (R-WI) has said there will be just a CR that will not extend beyond January 1st. This is contrary to some thinking that a two-month CR would be more likely. However, a shorter-term CR would make sense if there is a budget deal, especially since we know that it can take appropriators 4-5 weeks to piece together an omnibus once a deal is reached on lifting the spending caps.

o   Our sense is that appropriators may already be pre-conferencing FY18 appropriations bills, even if a deal is still coming together, with the objective of shortening the timeline needed to prepare an omnibus once a budget deal is finalized. This is supported by the fact that Senate Appropriations Committee Chairman Thad Cochran (R-MS) plans to release the four remaining FY18 bills that have yet to be marked up by the committee – Defense, Interior-Environment, Homeland Security, and Financial Services – this week. These bills will be released at last year’s funding levels and are unlikely to go through the formal committee markup process.

o   Both the House and Senate have now passed the Fiscal Year (FY)18 National Defense Authorization Act (NDAA) conference report. The NDAA, which is now on its way to the president’s desk, busts the budget caps, authorizing nearly $700 billion in defense spending, well above the $549 billion defense spending cap.

o   A number of House Republicans have made clear they will not vote for another CR without some guarantee of higher levels of defense spending for the remainder of FY18.

  • Our best guess is that the “Big Four” have or are extremely close on a deal to raise the spending gaps, but GOP congressional leadership may be hesitant to agree to and announce such a deal until after additional progress has been on made on their top legislative priority – tax reform. It seems to make sense that Republicans would hesitate to speak publically about higher FY18 spending numbers given some criticism related to how tax reform will increase the deficit. 
  • We continue to think that in exchange for higher defense spending, and potentially funding for President Donald Trump’s proposed border wall, Democrats will continue to insist on parity in lifting the caps for both defense and non-defense spending, and potentially, a number of other expiring or otherwise timely provisions.
  • The Ninth U.S. Circuit Court of Appeals voted last week to allow a federal judge to force the Trump Administration to release more internal documents on how the Justice Department arrived at its September decision to end the Deferred Action for Childhood Arrivals (DACA) program. Recently, a bipartisan group of former high ranking national security officials sent a letter to congressional leaders urging them to pass Dreamers legislation by December 8. Congressional Democrats remain motivated to secure a DACA fix soon – potentially by the end of the year.
  • In addition to funding the government, addressing tax reform, and attending to consequential immigration issues, the healthcare debate continues to creep back into discussion of all potential legislative vehicles. Though the House tax reform bill (H.R. 1) avoided the issue, the Senate Finance package includes a repeal of the individual mandate. Senator Ron Johnson (R-WI) has already expressed his opposition to the measure, siting small business concerns, and became the first Republican senator to come out against both the House and Senate tax reform measures. Senators Susan Collins (R-ME) and Lisa Murkowski (R-AK) are concerned about repealing the individual mandate. Senator Murkowski said last week that healthcare marketplace stabilization must be part of the package, and Senator Collins thinks that the Senate should strike the measure from the bill, or, barring that, pass both stabilization and high-risk pool legislation. The White House indicated over the weekend that President Trump is open to dropping the healthcare provision from the tax package, and we think it is possible Congress returns to healthcare in 2018.
  • Though the Treasury Department has said that Congress has until January to lift the debt limit, some members of Congress have indicated that if there is going to be a massive end of the year package, the debt limit should be included in that measure. However, despite the fact that many in Congress may not want to raise the debt in an election year, without a must-pass mandate, it may slip into 2018.
  • The White House submitted to Congress on Friday its third disaster relief request, at $44 billion, to assist recovery efforts in Florida, Puerto Rico, and Texas following the devastation from Hurricanes Harvey, Irma, and Maria. Congress has already approved $52 billion in hurricane response, but the latest request is short of what local officials had sought – Florida has asked for $27 billion in aid; Texas had asked for $61 billion for reconstruction; and Puerto Rico has requested $96 billion.
  • To top it off, the National Flood Insurance Program (NFIP) expires December 8, after receiving a short-term extension earlier this year. The House cleared its reauthorization and reform legislation (H.R. 2874) last week. It would reauthorize the NFIP for five years and enact numerous operational changes favored by Financial Services Chairman Jeb Hensarling (R-TX). Negotiations are ongoing in the Senate, which is not expected to take up the House package.
  • Finally, a special election to fill the vacant Alabama Senate seat is scheduled for December 12. Congress had been hoping to wrap up many of the end of the year issues before the winner of the race was sworn in, but in light of the recent controversies, the upper chamber is facing even greater pressure to do just that.

All of this is to say, we’re thankful for each other, and we’re buckling up for a wild ride to 2018!