According to Ed Mills, Washington Policy Analyst, this month boasts one of the longest lists of “must-pass” items on the congressional agenda in memory.
We enter January with one of the longest lists of “must-pass” items on the congressional agenda in memory. Government funding faces a January 19 deadline and the U.S. Treasury is using extraordinary measures while waiting for Congress to lift the debt ceiling. A disaster aid bill, potential fixes to the Affordable Care Act (ACA), a long-term solution to the Deferred Action for Childhood Arrivals (DACA) program, an extension for the Children’s Health Insurance Program (CHIP), an extension of a variety of expiring tax provisions, and a Senate vote on a bill to alter the Dodd-Frank Wall Street Reform Act are all up for debate in January.
Longer-term, President Trump and congressional Republicans would like to debate an infrastructure bill and entitlement reform in 2018. Funding the government and dealing with the debt limit both require a 60-vote threshold in the Senate, which will require votes from Senate Democrats. While congressional Democrats were willing to support a temporary government funding bill in December, they have signaled that they will not vote for another funding bill unless it includes a solution to a number of the agenda items listed above. Ultimately, we believe a deal is within reach, but do caution that this month is set to produce a series of negative macro headlines coming out of DC and a return of brinkmanship.
Government funding expires on January 19 and this is the debate to track. A funding bill will likely serve as the legislative vehicle for compromises reached on other agenda items. President Trump and congressional leaders are set to meet this week to start negotiations, but we expect a fight up to the deadline. All government funding bills require a simple majority vote in the House of Representatives, but face a 60-vote (out of 100) threshold in the Senate. Congress passed a series of short-term extensions at the end of the year to avoid some of the more politically difficult issues now facing congress out of concern it could have jeopardized the tax bill, and Democrats did not want to shut down the government right before Christmas. With the tax bill signed, this gives Congressional Republicans greater ability to cut a deal with Democrats. A final deal will likely see some of the more conservative House and Senate Republicans voting against the final bill, but the bill passing with the support of congressional Democrats. The most likely provisions to be attached to a final bill (in order of likelihood) include: the debt limit, CHIP, disaster relief, tax extenders, a DACA fix, and a potential ACA fix.
Congress had previously waived the debt limit through December 8, 2017 and the Secretary of Treasury is now using extraordinary measures to prevent breaching the debt limit. These extraordinary measures have become more commonplace in recent years. Treasury has warned that these measures can be maintained until some point this month, but no hard deadline has yet been set. When congress voted on the debt limit in 2017, there was an agreement between President Trump and the leadership of Congressional Democrats to come up with a solution that would prevent the need for future increases in the debt limit. Raising the debt limit is also subject to the 60-vote threshold in the Senate and we fully believe a compromise will be reached to deal with the debt limit, but this represents a significant point of leverage congressional Democrats have in negotiations on other agenda items.
The Children’s Healthcare Insurance Program (CHIP) has been funded through a series of short-term funding bills following the end of its full funding at the end of FY17. Providing longer-term funding for CHIP is a main priority for congressional Democrats in government funding negotiations. Funding for this program remains likely in any government funding bill.
Funding for rebuilding efforts in California, Florida, Texas, and Puerto Rico following a variety of natural disasters in 2017 remains a top congressional priority, but the final amount and details of the relief remain in flux. In late December, the House voted for an $81 billion disaster relief bill, but the Senate has yet to unveil its bill. The $81 billion House bill would set a record for a disaster relief bill in U.S. history, but the affected communities have raised concerns that the bill may not be enough to meet their rebuilding needs. A disaster relief bill could be voted on as a standalone bill, but in the interest of time it is a top contender to be added to the final government funding/debt ceiling bill as a way to garner votes from members representing disaster impacted areas. We will also be monitoring the bill for potential relief for Puerto Rico, especially if it is used to fix some of the concerns raised by the island in the recently passed tax bill.
Despite the passage of the tax bill, there is a list of tax provisions that have expired and that Chairman of the Senate Finance Committee, Orrin Hatch (R-UT), is seeking to extend. Senator Hatch released a tax extender bill in late December and among the provisions he is seeking to extend is the ability to deduct mortgage insurance, a variety of energy provisions, and several tax provisions important to Puerto Rico. House Ways and Means Committee Chairman, Kevin Brady (R-TX) has indicated he generally opposes the continuation of the tradition of a tax extenders package, but expect this to emerge as a bargaining chip in other negotiations.
A March 5 deadline looms for the Deferred Action for Childhood Arrivals (DACA) program and congressional Democrats, especially members of the Congressional Hispanic Caucus, have made a legislative fix for DACA a priority before supporting another government funding bill. Senator Jeff Flake (R-AZ) was also promised a vote on DACA in exchange for his support for the tax bill. This will likely be the most contentious fight surrounding the government funding/debt limit debate. President Trump has signaled he supports working to find compromise, but funding for a border wall with Mexico must be included in any deal – something congressional Democrats have stated is a non-starter. We believe a permanent solution on DACA is possible, but far from certain. The debate over DACA and the border wall will likely push these funding/debt limit fights to the deadline.
With the repeal of the individual mandate for health insurance in the final tax reform package, Senator Susan Collins (R-ME) was promised a vote on legislation that restores payments to health insurers intended to subsidize premiums in the individual market. Among the provisions possible are a bi-partisan deal worked out by Senators Lamar Alexander (R-TN) and Patty Murray (DWA) restoring these insurance subsidies, and a bill from Senators Collins (R-ME) and Bill Nelson (D-FL) compensating health insurers for high-cost patients. These provisions enjoy broad support in the Senate, but are opposed by a number of House Republicans. A number of House Republicans have stated that inclusion of these provisions in a government funding bill would cause them to vote against any government funding bill. Inclusion in any final deal is possible, but these provisions currently rank low in terms of likelihood in a final bill.
Among the few items on the list that could see bi-partisan support in January is a bill in the Senate to make changes to the Dodd-Frank Wall Street Reform Act. This is far from a repeal, but this bill would provide meaningful regulatory relief for a number of community and regional banks. We expect that this bill can clear the Senate in late January, with a possible compromise reached with the house by the end of 1Q18.
Beyond the rush to complete the January agenda, President Trump and congressional Republicans have been discussing a potential infrastructure bill and a debate on entitlement reform. There is some belief that infrastructure might be one of the few bi-partisan efforts that could be accomplished in 2018 and Speaker Paul Ryan has long wanted to tackle entitlement reform. We remain skeptical at this point on these efforts for a variety of reasons, but will be looking for how this month’s negotiations play out and will be updating our thoughts as warranted.
Note that legislative and regulatory agendas are subject to change at the discretion of leadership or as dictated by events.
Source: Raymond James Research
All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change.