More of the Same in an Election Year

By Steve Kopperud, SLK Strategies

As you read this, a July 18, 2016, deadline is looming. That is when the United States (US) Congress will effectively disappear for most of the summer and a good chunk of the autumn to tend to the business of political party nominating conventions and November elections. The common “wisdom” in Washington, DC, is that if legislative business is not concluded by the time lawmakers flee the city in July, most of the unfinished business will be punted into either the post-election lame duck session or the 115th Congress convening in January 2017.

For the full House of Representatives and one-third of the Senate, the primary goal is reelection in November, meaning to the extent politically possible, all controversial issues must be avoided. For 100 percent of Congress and five White House aspirants, it comes down to who is in political charge of the federal government when the dust settles in November. In a perfect GOP world – and based on the numbers – control translates to a Republican president and a Republican-controlled Congress. To the Democrats, the numbers tell the party its goal is to take back the Senate while putting one of their own in the White House for another four years.

However, while 535 lawmakers and one former Secretary of State chase votes, industry broadly is increasingly concerned about just how much legislative work will get done this year. Among issues hanging fire are several closely watched by the rendering industry.

At the top of the list is fiscal year (FY) 2017 federal spending and whether Congress will fully fund the Market Access Program and the Foreign Market Development program. Second on the spending list is how much money the Food and Drug Administration, US Department of Agriculture (USDA), and Environmental Protection Agency (EPA) will get and how Congress will tell them to spend it. The answer to the first concern is “yes,” but the answer to the second is unknown.

On the money side, in a perfect procedural world, first Congress enacts a FY 2017 budget resolution and then it enacts 12 individual spending bills that keep the departments and independent agencies operational. Between discretionary spending (about $1.25 trillion) and monies already obligated – mandatory spending – the federal budget now looks to sit just north of $4 trillion for FY 2017.

From a 30,000-foot view – and because it is an election year – most of the action on a FY 2017 budget resolution is noise and political posturing. For all of the noise, a congressional budget resolution, even if approved by both chambers, has no real force of law but rather serves as a roadmap for congressional appropriators as to how much money the federal government should spend on various priorities.

President Barack Obama’s FY 2017 budget recommendation sent in February is already a distant memory. The Senate in March all but surrendered its role in the budget fracas as Senator Mike Enzi (R-WY), chair of the Budget Committee, admitted he will continue to play with the numbers this summer but will not be producing a formal Senate budget.

On the House side, the conservative wing of the Republican membership is pushing to hold the line on any increase in discretionary spending unless lawmakers are willing to cut entitlement programs – Medicare, Social Security, veterans’ benefits, and so forth – by an equal amount over the next two years. However, the far-right House Freedom Caucus opposes the move and wants to simply reduce overall discretionary spending rather than hold the line at FY 2016 levels in exchange for cuts elsewhere.

As to the actual spending bills, House and Senate leadership have vowed to return to “regular order” in their handling of FY 2017 appropriations. This means the respective appropriations committees have begun the conventional process of listening to various secretaries and agency heads explain why they need more money, and these committees will then go through the process of approving the dozen bills. History tells us “regular order” is at best aspirational. Congress has enacted all 12 appropriations bills only four times since 1977, and the last time lawmakers did what they were supposed to do was in 1997.

While some of the spending measures – military and homeland security for instance – may see a floor vote in both chambers, most will not. What Congress will inevitably wind up doing, because it is an election year and lawmakers hate explaining spending in an election year, is cobble together yet another continuing resolution that will keep the government operating past September 30, the end of the fiscal year, and likely well into December. That means the heavy lifting – the FY 2017 omnibus spending bill – will be slapped together during the post-election/end-of-session lame duck. The spending numbers will look remarkably like the omnibus spending bill enacted last December.

House Speaker Paul Ryan (R-WI) still dreams of doing some form of federal tax reform this year. Yet given the complexity of the issue, its political volatility, and, again, the GOP desire to deny Obama any legacy credit for tax code simplification/reduction, the earliest the words “tax reform” may be mentioned is in the lame duck session and then only if there is broad bipartisan agreement on minimum tax rate tinkering on both corporate and personal rates as a prelude to 2017 actions.

Congressional action to halt or hinder EPA rulemakings on water, air, and climate change is unlikely. Given that nearly all of the truly contentious rulemakings – waters of the US, carbon dioxide limits on existing and new power plants, and ozone limits – are tied up in federal court based on legal action by the states, industry, and individual companies, Congress is not likely to step in. Instead, it can let the process play out in hopes the federal courts will decide the future of Obama’s climate change legacy.

Unlikely to get any attention save for the occasional floor speeches and pointed media quotes will be the TransPacific Partnership (TPP) trade treaty, approved in late 2015 by 12 Pacific Rim nations. The historic deal has been a political football for White House aspirants from both parties, and is also a major target of criticism for labor unions and environmental groups. Again, there is no political will to take on the controversial treaty when voter blocs rail against it, and for Republicans, it is another of Obama’s “legacy issues” they can deny the lame duck president.

Both House and Senate GOP leaders have said they will not schedule floor action on TPP while Obama is in office. If action is taken before the president exits, it will happen at the earliest during the lame duck session but more likely once the new Congress convenes next January and likely well after the new president gets the keys to the White House on January 20, 2017.

TPP is also coping with unwanted negative publicity surrounding the growing public disenchantment with the administration’s ongoing negotiations with the European Union (EU) on the Transatlantic Trade and Investment Partnership (TTIP), another Obama legacy trade item. Veteran trade observers publicly contend the notion of the United States and EU hammering out a successful comprehensive “free trade agreement” is a long shot at best given the dramatic philosophical and political differences between the world’s two largest trading blocs, including opposing views on biotechnology, animal drug use, animal welfare, geographic product names, patent protections, and so on.

This growing schizophrenia over trade deals is well illustrated by recent policy actions by the US dairy industry. The National Milk Producers Federation (NMPF), which represents US dairy cooperatives, endorsed TPP after a long analysis, just in time for administration submission to Congress for review and ratification this spring. The co-op group said, “Taken in its entirety, the TPP agreement is positive for the US dairy industry.” However, at the same time, NMPF stated when it comes to TTIP, talks between the United States and EU have yielded no positive “concrete approach to regulatory and technical barriers.”

Also garnering increasing attention but with little likelihood that focus will translate into action is the Renewable Fuel Standard (RFS), particularly the RFS for corn ethanol. The RFS is an almost guaranteed target for the 115th Congress when it convenes next January as no one has the political will or energy to take on the controversial federal gasoline/renewable fuels blending mandate battles this year.

Encouraged by Senator Ted Cruz’s (R-TX) Iowa caucus win in February even as he opposed the RFS in the heart of ethanol country, RFS opponents convinced GOP lawmakers to hold hearings in both the House and Senate in March related specifically to the notion the RFS is broken. Yet should it be mended or repealed altogether? All of the players have lined up along expected political lines, with the petroleum industry and food animal producers calling for the death of the RFS, and the renewable fuels community fighting to preserve the RFS as the lifeblood of the industry.

However, near-record ethanol exports, coupled with EPA’s mishandling of the calculations and timing of RFS blend requirements for 2014, 2015, and 2016, have made life increasingly difficult for RFS supporters. In addition, the ethanol industry’s very public dissatisfaction with how much of their product is mandated to be blended with gasoline has not helped their case. Add to the mix USDA’s increasing use of federal dollars to help install ethanol blender pumps around the country and the fight to preserve the RFS for ethanol in its current form is an increasingly uphill climb.

In the “advanced biofuels” segment of biomass-based alternative fuels – biodiesel, renewable diesel, and cellulosic ethanol – the story is more positive given that the still relatively young industry can point to both plant-based and animal-based biodiesel, as well as the quickly growing cellulosic ethanol side of the market.

Biodiesel refiners and renderers made a smart political move during last fall’s EPA go-around on the RFS by staying out of the corn ethanol battle and focusing on EPA education to build their case for higher RFS blend mandates. The National Biodiesel Board is also quietly building support for a shift from a federal biodiesel blender’s tax credit paid directly to gasoline makers to a producer’s tax credit paid to the advanced fuel refiner. In a perfect world, North American biodiesel producers would qualify for the credit, not just those in the United States, once it operates as essentially one market.

Sensing there is a growing political willingness to allow the ethanol RFS to die a natural death – it expires in 2022 unless Congress renews it – some current congressional RFS supporters are saying they would support ending the program. However, Congress must limit EPA’s discretion over the current program, including the agency’s tendency to ignore statutory mandates on how much biofuel must be blended on an annual basis. By signaling a willingness to revisit the RFS, these lawmakers believe they give investors and ethanol companies time to plan for an industry without federal supports.

The outcome of the post-election lame duck session where many of these issues will land hinges on which party wins control of Congress and who will be sitting in the White House for the next four years. If the GOP sweeps the board, Democrats will make the party work for everything it tries to achieve in lame duck. Obama will also have seriously sharpened his veto pen. If the chambers split between a GOP House and a Democrat Senate, the party controlling the White House will make the plea that the new president should be able to at least set an agenda rather than being handed policies and programs that may have to be undone.

For the most part, must-pass legislation (i.e., spending, reauthorizations, etc.) will be finished in lame duck. For the rest of it, we look forward to more of the same in 2017.

Also unresolved and likely to remain that way until the next Congress – at least according to Majority Leader Mitch McConnell (R-KY) who is backed by Senate Judiciary Committee Chair Charles Grassley (R-IA) – is the fate of Obama’s nominee to replace the late Supreme Court Associate Justice Antonin Scalia. While no one talks about Judge Merrick Garland’s lack of qualifications, he is currently chief judge of the US Court of Appeals for the District of Columbia, Senate GOP leadership says Scalia’s replacement should not be considered during the politically-charged election cycle but should be made by the new president elected in November. Obama asserts it is his constitutional duty to nominate and the Senate’s duty to act on his nominee. So far, neither side has blinked.

April 2016 RENDER | back