Small Businesses Will Bear a Large Burden of Proposed EPA Water Rules

This post was written by Christopher L. Rissetto and Robert Helland.

The Public Policy & Infrastructure practice continues to monitor the rollout of the “Waters of the United States” (“WOTUS”) rule proposed by the Environmental Protection Agency (“EPA”) and Army Corps of Engineers (“Corps”). The comment period for this proposed rule closed November 14, 2014. The purpose for this rule – ostensibly – is to settle 40 years of debate as to what constitutes waters of the United States under the Federal Water Pollution Control Act, commonly known as the Clean Water Act (“CWA”) 33 U.S.C. § 1251 et seq. But, as we have noted, the new policy presents an aggressive direction for EPA and the Corps, placing broad areas of wetlands, streams – including intermittent streams, and so-called “other waters” under federal scrutiny. The Public Policy Team assisted in developing client rulemaking comments for the WOTUS rulemaking.

The CWA applies to (1) waters used in interstate or foreign commerce; (2) interstate waters; (3) the territorial seas; (4) and any “impoundments” of these waters (e.g., reservoirs or other water basins created when water is dammed). The proposed rule does not change this, but adds three new bodies of water:

  1. All tributaries of the waters identified above
  2. All waters, including wetlands, adjacent either to the newly defined tributaries or to any of the other waters identified above
  3. So-called “other waters,” including wetlands. Section 2 (a)(5-7).

The impact on small businesses. If implemented as written, any entity that owns or operates land on or near these bodies of water will be facing a host of new permitting requirements. But the burden of compliance would fall disproportionately on golf courses, farmers, homebuilders and other small businesses throughout the country. They will need federal permission – which is not guaranteed – for any activity that may affect these waters, or face civil penalties at the current rate of $37,500 per day for each violation. This could halt operations at these small businesses or even cause them to close altogether. It was because of these concerns that the Small Business Administration’s Office of Advocacy, in a letter dated October 1, 2014, recommended the EPA “withdraw the rule and…conduct a Small Business Advocacy Review panel before proceeding any further with this rulemaking.” Dr. Winslow Sargeant, Chief Counsel for Advocacy, noted that a Small Business Advocacy Review panel is required under the Regulatory Flexibility Act (Pub. L. 104-121, Title II, 110 Stat. 857 (1996)) “when a rule is expected to have a significant economic impact on a substantial number of small entities.” He stated that the Office of Advocacy believes that the proposed rule does have “direct, significant effects on small businesses."

The Office of Advocacy echoes the concerns being raised by many in the small business community. These concerns were discussed in a “Small Entities Meeting” at EPA headquarters October 15, and will likely be raised again in the thousands of comments submitted on the rule. The new Congress is anticipated to respond to the proposed rulemaking, as EPA actions, generally, will be closely reviewed.

Will Congress or the DOT enact stricter safety regulations for drivers of commercial motor vehicles?

This post was written by Christopher L. Rissetto and Robert Helland.

The recent accident on the New Jersey Turnpike that severely injured actor and comedian Tracy Morgan has focused attention – again - on issues of safety in the operations of commercial motor vehicles.  The driver in the accident which injured Morgan, killed comedian James McNair, and injured several others purportedly had not slept in 24 hours.  There are a number of regulations in place to help reduce driver fatigue which, in the aftermath of this accident, we expect federal regulators and Members of Congress to review in order to determine if they are working.   Federal  Hours of Services regulations establish daily and weekly limits on how much time can be spent behind the wheel.  To combat fatigued driving, drivers of property-carrying commercial motor vehicles (which was the type of vehicle involved in the Turnpike crash) face limits both on how much time they can spending behind the wheel both on a daily basis as well as cumulatively, during a 7 or 8 day period:  

I. Only 14 consecutive hours on duty with no more than 11 of those hours spent behind the wheel.   Once a driver begins a duty period, the clock starts ticking as to how much of that time on duty can also be spent behind the wheel of a property-carrying commercial motor vehicle.  The driver can only spend 11 hours of any 14 hour period behind the wheel, with a half hour break after 8 hours.  Once 14 consecutive hours on duty passes, the driver may not get behind the wheel, even if it is for the first time.  The driver can only start a new 14 hour shift after at least 10 consecutive hours off duty.  49 CFR § 395.3(a). 

II. Cumulative limits of 60 or 70 hours, depending on how frequently you drive.  In addition to the daily limits, federal regulations also limit the total hours drivers of property-carrying commercial motor vehicles may drive over the course of any 7 or 8 day period.  While described as limits based on a “set” work week, the FMCSA intends them instead to be based on a flexible period, i.e. the cumulative time spent on duty over the past 7 or 8 days, in order to better account for drivers who may not work on a daily basis.  

  • Those who are “on duty” - either behind the vehicle or performing other activities - but not every day of the week , cannot drive  a commercial vehicle after working 60 hours over 7 consecutive days. 
  • Those who are on duty on a daily basis cannot drive a commercial vehicle after working 70 hours over 8 consecutive days.  49 CFR § 395.3(b). 

III. 34 hour restart.  Once a driver reaches the cumulative limits described above, he or she must then spend time off duty for at least 34 consecutive hours before returning behind the wheel.  This must include 2 nights of rest (1 a.m. to 5 a.m.)and is known as the “34 hour restart”.      49 CFR § 395.3(c)(1-2). 

The 34 hour restart effectively ends a trucker’s workweek, requiring them to get a break that could be as long as 48 hours, when factoring in 2 nights or rest.  The two night rest requirement was added into the House of Services Regulations by the Federal Motor Carrier Safety Administration (“FMCSA”) in 2013. 

So how could someone spend more than 24 hours behind the wheel?  As noted, the driver in the in the Turnpike crash is alleged to have spent more than 24 hours behind the wheel, which would be in violation of federal Hours of Service Regulations.  .  To determine if this is true, we expect attention to focus on the logs  kept by the trucker, which are still in paper form.  One answer may lie in the fact that truckers are still required to keep a log of their records by paper.  The FMCSA  has proposed requiring electronic log books for truckers in a Supplemental Notice of Public Rulemaking, a so-called “black box” for truckers, with a comment period expected to end at the end of this month.   Senator Charles Schumer (D-NY)  has noted that the rule may not be made final until the beginning of 2017 and has urged the FMCSA to expedite the rulemaking process.  Also during the prior rulemaking, the FMCSA had considered – but rejected – lowering the daily driving limit from 11 hours to 10, noting the lack of evidence favor of this.  This proposal may come back, especially after the full details of the crash are known.   Also in the mix is a proposal by Senator Susan Collins (R-ME) to limit the 34 hour restart by suspending the two nights rest and allow more than one restart in a 7 day period.  The amendment was included in Senate version of the Fiscal Year 2015 Transportation, Housing and Urban Development Appropriations bill (S. 2438) by a vote of 21-9 on June 10, 2014. 

The Turnpike incident will trigger more debate and possibly provoke a strong response by federal regulators and Congress.

Show me the money: for water and transportation projects, the question is always how to pay.

This post was written by Christopher L. Rissetto and Robert Helland.

Two recent important developments in Congress illustrate the opportunities, and limits, in financing infrastructure projects in today’s Washington.  First, the House of Representatives and the Senate, by overwhelming margins, agreed to a conference report ironing out the differences on H.R. 3080, the Water Resources Reform and Development Act of 2014 (“WRRDA”), which pays for navigation, dredging, and flood protection projects throughout the country.  The legislation heads to the President’s desk for his expected signature.  Second, the Senate Environment and Public Works Committee unanimously approved legislation reauthorizing the nation’s surface transportation program S. 2322, the MAP-21 Reauthorization Act.  However, the circumstances behind each bill are not the same:  the Harbor Maintenance Trust Fund (“HMTF”), which funds water projects, has a surplus of more than $8 billion.  Meanwhile, the Highway Trust Fund (“HTF”), which funds highway and mass transit projects, is almost insolvent.  The funding disparities between the two indicate the challenges in providing infrastructure funding in today’s Washington. 

$5.4 billion to pay for 34 water projects through Fiscal Year 2019.  According to the Congressional Budget Office, WRRDA authorizes $5.4 billion for water projects, which includes 34 projects, through Fiscal Year 2019.  The key, in this era of no congressional earmarking, is that funds must go to water infrastructure projects that have (1) a completed report by the Army Corps that indicates that the project is in the federal interest, and (2) a completed environmental impact statement (section 1005(a)).  As we noted previously, the HMTF is supported entirely by user-fees, yet sees half of its revenue diverted from port projects to support the federal government’s activities.  Section 2101(b) of WRRDA addresses this by requiring all trust funds to be used for water projects by Fiscal Year 2025, leading to a large supply of funds for water projects. 

But what about highways and mass transit?  Compare the relatively easy passage of WRRDA with the reauthorization of the nation’s transportation infrastructure program.  Bridge, highway and mass transit projects are financed federally by the HTF, which itself is funded primarily by the 18 cent gasoline tax.  Unfortunately, the Department of Transportation estimates the HTF will face a shortfall before the end of this fiscal year:  gas tax revenue has fallen, requiring transfers from the general fund (i.e., the United States taxpayer), with the latest being a $9.7 billion transfer shortly after the start of FY 2014.  However, the balance has continued to drop.  The DOT notes “as of April 25, 2014, the Highway Account cash balance was $8.7 billion,” which will likely require another cash infusion before September 30.  The MAP-21 Reauthorization Act would reauthorize surface transportation projects for six years at the baseline level established by the CBO, which is equal to current funding plus inflation.  Even that amount is unsustainable, without new funding to the HTF.  Nor is it enough to address the nation’s infrastructure deficit, as noted by the American Society of Civil Engineers and others.  Before the MAP-21 Reauthorization Act can become law, Congress will have decide whether additional transfers from the general fund are required or whether a long-term funding mechanism is possible. 

The likelihood of Congress making any decision on raising revenue seems unlikely, given the pending midterm elections.  What is more likely is that Congress, failing to pass any legislation on transportation funding, waits until the 114th Congress convenes in 2014 to start anew. 

Proposed Rule from EPA and U.S. Army Corps of Engineers Seeks To Expand Federal Jurisdiction of Water

This post was written by Christopher L. Rissetto, Robert Helland, and David W. Wagner.

After years of study, litigation, controversy – and mayhem – the Environmental Protection Agency (“EPA”) and Army Corps of Engineers (“Corps”), on April 21, 2014, jointly published, for comment, a new definition of “waters of the United States” under the Clean Water Act (“CWA”). 79 Fed. Reg. 22188-22275. It is not easy to overestimate the scope and reach of this proposed rule. While it is purportedly aimed at clarifying which wetlands and streams qualify for protection under the CWA, it can also be seen as impacting most bodies of water in the country and the lands around them as well. Because of this, further litigation, it seems, is assured, as well as direct congressional action to reverse or change the rule by authorizing legislation or indirect congressional action to prohibit the EPA or Corps from spending any funds to implement it.

To view the full issued Client Alert, click here.

McCutcheon v. Federal Election Commission: The Political Parties Strike Back

This post was written by Christopher L. Rissetto, Lorraine M. Campos, and Robert Helland.

The Supreme Court decided last week in McCutcheon v. Federal Election Commission that aggregate donation limits, which capped the total on how much someone can contribute to candidates and political parties, per election, violated the free speech protections of the First Amendment, 572 U.S. ____(2014).  If this sounds familiar, it should:  the Court used similar reasoning in Citizens United v. Federal Election Commission, to hold that restrictions on corporate spending in political campaigns also violated the First Amendment's protection of political speech.  Citizens United, 558 U.S. 310 (2010).  Citizens United gave rise to the “Super PAC,” which can raise and spend unlimited amounts of funds on behalf of political candidates, provided their activities are not coordinated with any candidate or campaign committee.  Consider McCutcheon to be a counter-balance, at least for political parties: they can now similarly raise unlimited amounts from donors as Super PACs.  At the very least, donors should expect to get more fundraising calls and emails.

Individual and Aggregate Campaign Donation Limits, Pre- and Post-McCutcheon.  Limits on both campaign donations and expenditures were set by the Federal Election Campaign Act, 2 U.S.C. § 431 et seq. (“FECA”), and then amended by the Bipartisan Campaign Reform Act Public Law 107-155, (“BCRA”).  The donation limits apply to how much an individual may contribute to a political candidate, party committee or political action committee (“PAC”).  They also apply to how much these last three entities can give each other.

The Federal Election Commission lists the inflation-adjusted amounts an individual may contribute for the 2013-2014 election cycle

  • $2,600 per candidate/candidate committee per election (primary and general)
  • $32,400 per year to a national party committee
  • $10,000 per year to a state, district or local party committee
  • $5,000 per year to a political action committee

Those amounts are capped so that an individual may only donate:

  • $48,600 to all candidates; and
  • $74,600 to all PACs and party committees, for 2013-2014

It is these latter caps on total donations that were challenged by plaintiff Shaun McCutcheon and one of the party committees he wished to donate to, the Republican National Committee.  Chief Justice Roberts, writing for the Court, concluded that those limits were invalid under the First Amendment.

McCutcheon rejects reasoning that without aggregate limits, individual limits are useless.  The limits on campaign donations and expenditures first put into place under FECA were upheld by the Supreme Court in Buckley v. Valeo, 424 U.S. 1 (1976).  In McCutcheon, Chief Justice Roberts discusses the Court’s reasoning in Buckley but notes that “its ultimate conclusion about the constitutionality of the aggregate limit in place under FECA does not control here.” McCutcheon, 572 U.S. at 11.  That is because the aggregate limits that were amended by BCRA created “a different statutory regime.”  Further, a number of protections put in place under both FECA and BCRA:

  • Prohibit donors from creating or controlling multiple affiliated political committees (so-called “anti-proliferation” provisions found at 2 U.S.C. § 441a(a)(5)); and  
  • Prohibit donors from circumventing individual limits by donating to multiple political campaigns and then having those funds “earmarked” to a specific candidate (so-called “anti-earmarking” provisions found at 2 U.S.C. § 441a(a)(8))

Finally, the limits in place on how much political campaigns contribute to each other also serve as another layer of base contribution limits; i.e., even if a donor wanted contributions to be re-distributed to a different political campaign or committee, these entities are limited as to how much they can transfer between themselves.  Id. at 11-13.  So McCutcheon found that even without aggregate limits, donors are limited from exercising excessive influence with high levels of campaign contributions.  

The First Amendment presents a high hurdle to contribution limits. McCutcheon found significant First Amendment concerns were implicated by the contribution limits.  “[T]he aggregate limits prohibit an individual from fully contributing to the primary and general election campaigns of ten or more candidates, even if all contributions fall within the base [individual] limits,” it notes.  Further, “to require one person to contribute at lower levels than others because he wants to support more candidates or causes is to impose a special burden on broader participation in the democratic process.”  Id. at 15-16.  The only “legitimate government interest” that would support such contribution limits, the Court found, was “preventing corruption or the appearance of corruption.”  Further, the Court found, citing Buckley, that Congress may only target one type of corruption, quid pro quo corruption.  Here, “[s]pending such large sums of money in connection with elections, but not in connection, with an effort to control the exercise of an officeholder’s official duties, does not give rise to such quid pro quo corruption.”  In reaching this view, the majority rejected the dissent’s view of protecting the public’s interest in collective speech.  Instead, it notes that the First Amendment “does not protect the government,” but rather the individual.  Id. at 17-19.

From Citizens United to the Super PAC to an end to aggregate contribution limits.  What will the Supreme Court decide next?  Citizens United held that corporations, trade associations and labor unions could use their general treasuries to fund direct political advertising against political candidates provided that this was not coordinated with a candidate or campaign committee, so-called “independent expenditures.”  Citizens United.  The same year as the Court’s decision in Citizens United, the United States Court of Appeals for the District of Columbia held that as a result of Citizens United, the government could not limit contributions to PACs set up specifically to make such independent expenditures, so-called “Super PACs.” v. FEC, No. 08-5223, D.C. Cir. (2010).  Now McCutcheon has gone the next step, ending aggregate limits for individual campaign donations.  With the last two remaining (and attractive) campaign finance restrictions being the ban on direct contributions from corporations and the individual limit on campaign donations, we do not expect the decision in McCutcheon to be the last word.  Justice Thomas in his concurring opinion suggests as much, noting:  “[t]his case represents yet another missed opportunity to right the course of our campaign finance jurisprudence by restoring a standard that is faithful to the First Amendment.  Until we undertake this reexamination, we remain in a 'halfway house' of our own design.” Concurring Opinion at 5. 

TIGER roars again! $600 million in funding available for transportation projects

This post was written by Christopher L. Rissetto and Robert Helland.

The Department of Transportation ("DOT") is once again soliciting requests for surface transportation infrastructure projects. This began in the American Recovery and Reinvestment Act of 2009 (“Recovery Act”) under the Grants for Transportation Investment Generating Economic Recovery Program, commonly called "TIGER." The popularity of this program has endured through the years, even though the total funding amount has decreased and the name is, technically, no longer TIGER. This year the DOT is providing $600 million in funding for “National Infrastructure Investments,” as directed by Congress in the Consolidated Appropriations Act, 2014 (Public Law 113-76). But a TIGER by any other name still has its roar and clients are advised to take advantage.

Click here to read the issued Client Alert.

Secret Science Reform Act of 2014

This post was written by Christopher Rissetto.

After years of alleging that the U.S. Environmental Protection Agency (“EPA”) relied on undisclosed and unverifiable data upon which to base its regulations, at least some Members of the U.S. House of Representative have decided to intervene.  On February 6, 2014, David Schweikert (R-AZ-6), Chair of the Subcommittee on Environment, in the House Committee on Science, Space, and Technology, joined by Committee Chairman Lamar Smith (R TX-21) and a total of 18 co-sponsors, introduced the Secret Science Reform Act (H.R. 4012). 

No text of the bill is yet available.  The bill’s title, however, gives a clear picture of the sponsors’ intention regarding the proposed legislation: To prohibit the Environmental Protection Agency from proposing, finalizing, or disseminating regulations or assessments based upon science that is not transparent or reproducible.

In a statement issued by the Committee, Chairman Smith gave an indication of the sponsors’ frustrations with the perceived absence of a scientific record to support EPA’s rulemakings: “Costly environmental regulations should be based on publicly available data so that independent scientists can verify the EPA’s claims.  The Secret Science Reform Act of 2014, which I sponsored, prohibits EPA from using secret science to justify new regulations.”

The bill was referred to the House Science, Space and Technology Committee. 

A hearing is currently scheduled for Tuesday, February 11, 2014, at 10 a.m., before the Committee’s Environment Subcommittee.  The hearing is titled, “Ensuring Open Science at EPA,” and will receive testimony on the proposed legislation.  Witnesses scheduled to give testimony are: Hon. John Graham, Dean, School of Public Environmental Affairs, Indiana University; Dr. Louis Anthony Cox, Chief Sciences Officer, Next Health Technologies, Clinical Professor, Biostatistics and Informatics, Colorado Health Science Center, and President, Cox Associates; Raymond Keating, Chief Economist, Small Business & Entrepreneurship Council; and Dr. Ellen Silbergeld, Professor, Bloomberg School of Public Health, Johns Hopkins University.

Politics will dictate where this bill finally goes, with the Senate being the stumbling block for any such legislation that is passed by the House.  The general issue of having verifiable science to support environmental initiatives, however, has some bipartisan appeal.  Additionally, many states are looking at options to limit the authority of their state agencies to exceed any federal rulemaking (without publicly available science to support more stringent rules), or to otherwise blunt the impact of questionable federal rulemakings.  Looming mid-term elections are also sure to include the question of the veracity of federal agency decisionmaking as a topic of debate.

President Obama's threat to use the Executive Order: A sign of things to come?

This post was written by Robert Helland and Christopher Rissetto.

President Obama stated in his State of the Union address to the nation: “wherever and whenever I can take steps without legislation to expand opportunity for more American families, that’s what I’m going to do.” He has already signed an executive order raising the minimum wage for workers under new federal contracts to $10.10 an hour. He also announced a plan for new government-sponsored savings accounts where employers do not offer 401(k) accounts. This has generated criticism. Senator Ted Cruz (R-TX), for example, has accused the Obama Administration of an “Imperial Presidency.” We would note, however, that this is not the beginning of a go-it-alone approach. Federal agencies have been moving forward in areas where Congress has not, including regulating emissions from coal-fired plants, and increasing affirmative action requirements for federal contractors. But the use of the executive order is a step further.

Executive orders have been used by every President since George Washington, across a broad range of policy areas. While their scope is open-ended, we would note that the Supreme Court held in Youngstown Sheet & Tube Co. v. Sawyer that their use “must stem either from an act of Congress or from the Constitution itself.” 343 US 579 (1952). President Obama has used the executive order, like his predecessors. But this statement indicates a willingness to go further. With less than three years left, we expect the Obama Administration to do so. Litigation, and possible congressional attempts – particularly through the House of Representatives – to control any perceived excesses of Presidential power, are also anticipated.

The passage of the Bipartisan Budget Act. What it means and what it does not mean

This post was written by  Christopher L. Rissetto and Robert Helland.

Overview:  Just in time for the holiday season: a truce in the ongoing budget battle between Republicans and Democrats.  As we have noted, this battle began during the debate and passage of the Budget Control Act of 2011, which mandated $1.2 trillion in domestic and defense spending cuts from fiscal years (“FY”) 2012 through 2021, with only certain programs such as Social Security and Medicaid exempted (Public Law 112-35).  A number of budget standoffs have occurred since then over how to best fund the government’s operations, with the only notable results being a decrease in the nation’s credit rating; a 16-day partial government shutdown; and an approval rating for Congress in the single digits.  For all these reasons - and likely most importantly the latter - the Republican-led House of Representatives and the Democratic-led Senate have agreed to a two-year budget resolution that will allow it to avoid the short-term spending deals that have only come after massive pain.  However,  H.J.Res 59, the Bipartisan Budget Act of 2013 (“Act”) only delays the pain of sequestration; it does not replace it with a long-term tax and spending deal.

One thing is clear:  No one likes sequestration.  After some delay and reduction of cuts, as a result of budget savings, the sequestration process began March 1 with $85 billion in spending cuts equally divided between defense and non-defense.  Screams of outrage were heard from a number of federal agencies, from the Defense Department to the EPA.  As we noted, the question was whether the outcry that accompanied the close-to $1 billion in spending cuts was enough for Members of Congress and the President to agree on a different combination of spending cuts and tax increases for FY 2014 and beyond.  It turns out the answer is a qualified “Yes.” 

The Bipartisan Budget Act of 2013:  More discretionary spending up front.  More spending cuts and fee increases down the road.   With a deadline for a budget deal of December 13, House Budget Chair Paul Ryan (R-WI-1) and Senate Budget Chair Patty Murray (D-WA) have produced a two-year budget resolution that provides relief from the cuts of sequestration for FY 2014 and 2015 in exchange for a combination of spending cuts and user-fee increases.  The Act would provide $63 billion in “sequester relief” by increasing defense and non-defense spending by $45 billion for FY 2014 and $18 billion in FY 2015 above the figures required under the Budget Control Act.  To offset the additional spending in the next two years, the Act would include a number of spending cuts and increases in user fees that would take effect over the next 10 years, including a change in cost-of-living adjustments for certain military retirees and an increase in airline security fees.  The Act also includes $22 billion to $23 billion in additional deficit reduction, beyond what was required by the Budget Control Act.  

Not a long-term replacement to sequestration.  The Act sets limits on what Congress allows itself to spend.  Now that it has passed both the House and the Senate, by votes of 332-94 and 64-36 respectively, appropriators can start moving forward on the 12 spending bills needed to fund the government’s operations (which should already have passed both houses and been signed by the President by October 1).  (Even with this success, there’s a sizable minority of members in both houses who opposed the Act and may likely seek to enact changes in these subsequent spending bills).  The significance of Congress finally being able to do its job and put a budget in place, and not a series of continuing resolutions, is important.  But we note that this is not a long-term spending deal, to take the place of the automatic cuts of sequestration.  Congress still needs to decide whether to put a long-term tax and spending plan into place or allow future sequestration cuts to take place.  And looming over all these decisions is the growing federal debt.  The Congressional Budget Office projects that even with the sequestration cuts in place, the federal debt held by the public will reach 100 percent of our nation’s Gross Domestic Product by 2038.  So don’t pop the champagne corks yet. 

A new model for infrastructure funding or a high water mark? Progress on WRDA continues as House and Senate conferees meet

This post was written by Christopher L. Rissetto and Robert Helland.

Chances remain high that legislation authorizing funding for navigation, dredging, hurricane risk reduction, and environmental restoration projects around the country will make it to the President’s desk for expected signature. Separate versions of this legislation passed both the Senate and the House of Representatives this year by overwhelming, bipartisan votes. A House-Senate conference committee is meeting now to iron out the differences between the House- and Senate-passed bills, which would be one of the last steps before a final vote occurs in each house and the legislation is sent to the President’s desk. We remain confident that this will happen either before Congress adjourns for the year or after it returns in January 2014. However, whether the final version of this legislation is a new model for infrastructure funding in this age of sequestration, as we earlier suggested, or simply a high-water mark for a Congress that cannot agree on the proper role for government in the funding of infrastructure, will depend on the final version that Congress produces. The devil, as always, is in the details.

The biggest factors in support of final passage? No earmarks for new water projects plus an increase in dedicated funding for harbor maintenance-specific projects. When the Senate Environment and Public Works Committee (“EPW”) first passed S. 601, the Water Resources Development Act of 2013 sponsored by EPW Chair Senator Barbara Boxer (D-CA), it enjoyed unanimous support, something unique in this post-earmark era of limited federal spending. Key to this support was the fact that the legislation did not fund any specific projects but rather authorized work to proceed on any project where “a report of the Chief of Engineers has been completed and a referral by the Assistant Secretary of the Army for Civil Works has been made to Congress as of the date of enactment” (section 1002). That would authorize 18 projects for $3.4 billion in federal funding through Fiscal Year 2018. The House-passed bill, H.R. 3080 the Water Resources Reform Development Act of 2013 sponsored by House Transportation and Infrastructure Committee Chair Bill Shuster (R-PA-9), uses similar – but not identical – language to authorize 23 new projects, totaling almost $8 billion in federal funding (section 1002). Additionally, both bills tackle the surplus in the Harbor Maintenance Trust Fund (“HTMF”) that has reached almost $7 billion by dedicating it to ongoing dredging and other harbor maintenance projects. The HTMF is supported entirely by user-fees, yet sees half of its revenue diverted from port projects to support the federal government’s activities. Both Title 8 of S. 601 and H.R. 3080 would guarantee that expenditures from the HTMF would equal receipts plus interest.

Both S. 601 and H.R. 3080 passed their respective houses with overwhelming, bipartisan majorities: S. 601 passed the Senate May 15, 2013 by a vote of 83-14. H.R. 3080 passed the House October 23, 2103 by a vote of 417-3. Yet despite such overwhelming support, a number of differences need to be resolved in conferences that go to the question of how far this legislation will go in setting a model for future bills, including:

How much of a role should the Corps of Engineers play? As noted above, S. 601 skirts the earmark ban Congress would authorize funding for projects cleared by the Corps of Engineers and referred to Congress. H.R. 3080 contains similar language but contains additional language for “Future Project Authorizations” (section 1004). Numerous reports indicate that House Republicans were unhappy with ceding too much power to the Executive Branch, which led to this language. Under this section, the Corps is to submit its own recommendation for future water project authorizations, but allow Congress the opportunity to approve or reject them. This mirrors a problem facing all spending decisions in the absence of congressional earmarking: with Congress taking itself out of the picture on spending, authority has shifted to the executive branch. This language indicates the beginning of a shift back.

Should financing be an option? As we noted earlier, Title 10 of S. 601 establishes the “Water Infrastructure Finance and Innovation Act of 2013” to provide loans and loan guarantees to water infrastructure projects. The goal would be to finance projects with dedicated, non-federal, funding sources (such as user-fees). Sections 10007 and 10008 lay out the types of eligible projects and activities, which include:

  • Flood or hurricane control projects
  • Levees, dams, tunnels and aqueducts
  • Projects for enhanced energy efficiency
  • Repair, rehabilitation, or replacement of a treatment works, community water system, or aging water distribution facility

Projects would be financed at long-term Treasury interest rates, which would represent a cost savings for many state and local borrowers. Fifty million dollars is authorized annually for a program to be run by the Army Corps of Engineers and the Environmental Protection Agency (section 10014(a)).

H.R. 3080 does not contain a similar proposal. However, we would note that the proposal is modeled after the successful transportation financing program known as the Transportation Infrastructure Finance and Innovation Act (“TIFEA”), which has provided private investment of a number of major road and bridge programs. Financing of infrastructure projects, including transportation, continues to be an option available to decision-makers in these tight times. If Congress agrees to create a similar program for water infrastructure projects, it would indicate how strong of an option.

Again, we are confident that a water infrastructure funding bill will reach the President’s desk. Its final composition remains to be determined.

The shutdown is over, for now.

This post was written by Christopher L. Rissetto and Robert Helland.

The 16 day partial federal shutdown is over. Over half a million furloughed federal employees have returned to work; national parks are again welcoming visitors; and the threat of our nation defaulting on its debts has been averted. But what began as a fight over funding of the Affordable Care Act (a/k/a “Obamacare”) has turned into the latest round of a long term fight over taxation and spending priorities that culminated in the $1.2 trillion in domestic and defense spending cuts mandated by the Budget Control Act of 2011 (Public Law 112-35) . And the limited nature of the agreement reached by the President and Congress indicates that the next round over the reach of these spending cuts is just around the corner.

The main terms of the deal that re-opened the federal government are (1) the operations of the federal government will be funded through January 15th ; (2) the debt limit is extended till February 7th; and (3) budget negotiations over a long term taxation and spending fix are set into motion and must be concluded by December 13th. That leaves only a few weeks for members of Congress to decide how to fund the federal government for the remainder of the 2014 Fiscal Year, and avert yet another shutdown. The question is whether the pain of the close to $1 billion in annual spending cuts begun under the Budget Control Act is enough for Members of Congress and the President to agree on a different combination of spending cuts and tax increases. We would note that before the automatic cuts put in under the Act’s “Sequestration” process, there was the so-called congressional “Supercommittee” that was tasked with finding an alternative. It was the failure of the Supercommittee that led to the indiscriminate cuts under Sequestration. The latest spending brinksmanship indicates that these dynamics have not changed.

But hopefully this time, things will be different. The damage to the economy, people’s lives and their faith in political institutions was devastating. There will be plenty of opportunities to see if those in Washington will remember this.

The threat of government shutdowns and the 'New Normal'

This post was written by Christopher L. Rissetto and Robert Helland.

Sounds familiar? The clock ticks towards another fiscal deadline while federal agencies and employees face the threat of another government shutdown. Since the passage of the Budget Control Act of 2011 (Public Law 112-25) and the subsequent sequestration process, Congress and the White House have been locked in an ongoing battle over tax and spending priorities. The latest skirmish is over whether Congress will pass a “clean” continuing spending resolution (“CR”), i.e. one that only funds agencies and programs at existing levels, before the 2013 Fiscal Year ends at midnight September 30th. Republicans in the House of Representatives have added an additional provision to the CR that defunds the Affordable Care Act, which the Senate has removed before sending the measure back to the House. If the House of Representatives does not agree to the Senate’s version of the CR, as is possible, much of the federal government would face a shut down on October 1st.

But the fact remains that the CR is only a temporary measure which will allow the federal government to remain open for a short time. Congress still has to fund the remainder of the 2014 Fiscal Year, leading to decisions on either additional CRs or an omnibus spending bill. Expect the battle over taxes and spending to continue as Democrats push for a overall spending level for Fiscal Year 2014 of $1.058 trillion, which is more than the spending level of $967 billion set in place under the Budget Control Act. And there has to be a decision, by October 17th, on increasing the national debt beyond the current $16.7 trillion ceiling.

So more chances exist for another budget standoff and government shutdown.

Welcome to the New Normal.

Obama Administration Responds to West, Texas Tragedy with Executive Order on Chemical Safety

This post was written by Christopher L. Rissetto, Lawrence A. Demase, Robert Helland, David W. Wagner, and Peter Cassidy.

Following the April fertilizer plant explosion in West, Texas, both Congress and the Executive Branch discussed a number of legislative and regulatory responses to this tragic event. The Obama administration has taken the first step by issuing an Executive Order on chemical safety and security issues for chemical storage facilities.

Click here to read the issued Client Alert.

Roberts' Court Strikes Down Cornerstone of Voting Rights Act on Federalism Grounds

This post was written by Christopher L. Rissetto, Robert Helland and Daniel Z. Herbst.

On the second-to-last day of the 2013 summer term, a 5-4 majority of the U.S. Supreme Court struck down a key enforcement provision of the Voting Rights Act (the “Act”) in Shelby County v. Holder, 570 U.S. ___ (2013). Congress enacted the landmark civil rights law in 1965 to remedy discriminatory voting practices that disenfranchised African-Americans throughout the American south. The centerpiece of the Act required certain state and local governments to obtain Department of Justice “preclearance” before making changes to state and local election laws. In operation, section 5 of the Act formally addressed the parameters of “preclearance,” while section 4 created the formula to determine which states must obtain clearance. Pursuant to the formula, section 4 required nine states – all with a history of voting discrimination – to satisfy the preclearance requirements. Congress reauthorized the Act in 2006, including the preclearance requirement and formula of section 4.

Shelby County, Alabama, challenged the preclearance requirements of sections 4 and 5 as outmoded and biased against particular governments. Chief Justice John Roberts wrote for the majority – which included Justices Alito, Scalia, Thomas, and Kennedy – in holding that section 4 was unconstitutional. The Court did not address the constitutionality of pre-clearance itself, but, in practical effect, without section 4 to establish which governments are subject to the requirement, section 5 will have no enforcement power unless or until Congress enacts a new statute to clarify the formula. Chief Justice Roberts repeatedly invoked the 10th Amendment in his opinion, noting that the Act “sharply departs” from the principles governing states’ rights. The Chief Justice also made it clear that while the Act was needed to remedy injustice in 1965, in his opinion, “nearly fifty years later, things have changed dramatically.”

In dissent, Justice Ruth Bader Ginsburg, joined by Justices Breyer, Kagan, and Sotomayor, argued that the Court was usurping the power of Congress, which reauthorized the Act in 2006. Justice Ginsburg argued that in voting rights cases, the Court should be especially deferential to Congress, which was given broad powers to protect such rights by the constitution and its post-Civil War amendments. Justice Ginsburg noted that “Congress approached the 2006 reauthorization of the Act with great care and seriousness… The same cannot be said of the court’s opinion today.”

Congress has changed since 2006. Chief Justice Roberts’ opinion noted that Congress can change section 4 to reflect “current conditions” if it wants to continue enforcement. However, this likely will not happen, at least in the immediate future. Gridlocked efforts on gun control, the Farm Bill, and the uncertain future of immigration reform in the House of Representatives indicate a lack of consensus, at least on hot button issues. And with the Senate and the House each controlled by the opposite party, consensus on any legislative changes to the Voting Rights Act would be needed to get a bill to the President’s desk. The Senate Judiciary Committee has scheduled hearings in July to examine the criteria used in section 4. They should provide some indication as to the likelihood of consensus. But if recent history is any indication, the next steps in this area will be taken on the state level.

The Supreme Court’s analysis highlights the increasing tensions between federal and state powers, and the meaning of the 10th Amendment.


Research and drafting assistance for this post was provided by Reed Smith Summer Associate Zeke Rediker.

U.S. Attorney complaint shows the perils of not complying with the Lobbying Disclosure Act

This post was written by Christopher L. Rissetto and Robert Helland.

“Focus on Fundamentals.” This often-used athletic admonition also applies well in executing an effective lobbying strategy. So right alongside decisions about which lobbying activities should be undertaken, and which candidates should be supported financially, should be the understanding that reporting those activities and donations is required under the Lobbying Disclosure Act (“LDA”)2 U.S.C. § 1605. While that may seem obvious, a recent complaint filed by the U.S. Attorney’s Office for the District of Columbia shows that not everyone gets it. A copy of United States of America v. Biassi Business Services, Inc., C.A. No. 13-0853 (D.D.C., filed June 7, 2013, is attached here (“Complaint”).

The 2010 appointment of Ronald Machen Jr. as the U.S. Attorney for the District of Columbia has seen a definite uptick in enforcement of LDA requirements, with more to come. The $33 million theoretically due under the Complaint seems to signal a further new enforcement resolve.

Given this, here is a reminder of two of the key requirements of the LDA: 

Once you register as a lobbyist, you have to report your lobbying activities on a quarterly basis. The Complaint, for example, alleges that defendant Biassi Business Services, Inc. (“BBSI”) registered as a lobbying firm first in September 2001, and then in an amended registration in May 2009. Under the LDA, any lobbying registrant shall file a Lobbying Activity Report (also known as the “LD-2”) “[n]o later than 20 days after the end of the quarterly period beginning on the first day of January, April, July, and October of each year in which a registrant is registered.” 2 U.S.C. § 1604(a). The Complaint further alleges that BBSI repeatedly ignored this requirement, even after being made aware of its first delinquency by the Secretary of the Senate in May 2009. In fact, subsequent to the May 2009 letter from the Secretary, BBSI “knowingly failed to file Twenty-Eight Quarterly LD-2 Reports on a timely basis.” Complaint, II.A., at 5. Further, “BBSI failed to file LD-2 reports within 60 days of receiving delinquency notices from the House and Senate” a total of 13 times. Id., Para. 29, at 7.

Once you register as a lobbyist, you have to report whether any contributions were made to candidates for federal office. The LDA also requires lobbyists and those that employ them to file semi-annual reports detailing the campaign contributions made to candidates and campaigns for federal office. 2 U.S.C. § 1604(d). This semi-annual report (also known as the LD-203) must be filed even if no contributions were made. In the case of BBSI, the Complaint alleges that BBSI “failed to file timely LD 203 reports for eight (8) semiannual periods, totaling ninety-six (96) delinquent reports” to the House of Representatives and the Senate. Complaint, Para. 31, at 8. Further, “BBSI failed to file LD-203 reports within 60 days of receiving delinquency notices from the House and Senate on the following occasions, totaling twenty-eight (28) reports BBSI failed to file within 60 days of notice.” Id., Para. 33, at 10.

The Complaint states that while some of these reports were filed after notice from the Clerk of the House or Secretary of the Senate, some remain delinquent to this day.

The cost of non-compliance with the Lobbyist Disclosure Act? $33 million. Civil penalties under the LDA of $200,000 per violation can be assessed on anyone “who knowingly fails to”

  1. remedy a defective filing within 60 days after notice of such a defect by the Secretary of the Senate or the Clerk of the House of Representatives; or
  2. comply with any other provision of this chapter.

The Complaint lists a total of 165 allegedly delinquent filings of the LD-2 and LD-203. Multiplied by $200,000 per violation brings a total of $33 million in penalties.

All for not filing paperwork that, when done properly, can require no more than 15 minutes to complete.

Whither WRDA? With U.S. Senate passage of a new Water Resources Development Act, the question is whether its "no earmarks" approach will hold.

This post was written by Christopher L. Rissetto and Robert Helland.

On May 15th, the Senate gave final approval, by a vote of 83-14, to S. 601, the Water Resources Development Act of 2013. As we indicated previously, any legislation authorizing additional funds for water infrastructure projects is remarkable in these times of sequestration. In this case, credit the difference, in large part, to two factors: (1) the Senate-passed WRDA bill does not include any earmarking but instead authorizes all “ready-to-go” water development projects, i.e. those with both a completed Report from the Chief of the Army Corps of Engineers and a referral to Congress by the Corps (Section 1002); and (2) the Harbor Maintenance Trust fund, which funds all water projects, has a healthy surplus of almost $7 billion.

The question now is how the House will proceed. This week, House Transportation and Infrastructure Chairman Bill Shuster (R-PA-9) expressed concerns over the “no earmark” approach of this authorization legislation. The Senate Environment and Public Works Committee noted at the time of the introduction of S. 601 that it currently represented “18 projects that address all of the major mission areas of the Corps of Engineers including flood risk management, navigation, hurricane and storm damage risk reduction, and environmental restoration.” However the Chairman, and others on the Committee, feel the list should be prepared with congressional involvement, as in prior years, to ensure that funding is spread between water projects appropriately and based on need. The Chairman has promised to introduce and pass a WRDA bill before the August recess that includes such a provision. Whether a majority of the House can be persuaded to adopt this position remains to be seen.

Federal Controls For Chemical Plant Safety: Controversy Continues After Texas Fertilizer Plant Explosion

This post was written by Christopher L. Rissetto, Robert Helland, Lawrence A. Demase, Peter Cassidy, and David W. Wagner.

The April 17, 2013 explosion at a fertilizer plant in West, Texas, has sharpened the ongoing debate over the adequacy of present federal safety requirements for chemical facilities. With over 14 persons killed and some 200 injured, controversy exists over the cause of the explosion. Congress and the Federal Executive Branch agencies have also sharpened their discussion over what should be done – if anything – to enhance risk management and other ways to prevent, or lessen, the continued threat of catastrophic damage and loss of life.

Click here to read the issued Client Alert by members of the Global Regulatory Enforcement Practice Group and Energy and Natural Resources Industry Group, which reviews this controversy in the context of existing requirements, those being considered in Congress, and the demands being made for direct regulatory action.

More than 4 years after its enactment, oversight of energy spending under the 'Recovery Act' continues

This post was written by Christopher L. Rissetto and Robert Helland.  

It’s been more than four years since President Obama signed the American Recovery and Reinvestment Act of 2009 (“Recovery Act”) into law February 17, 2009 (Public Law 111-5). Yet questions and issues regarding the spending of energy-related Recovery Act funding continue. The latest includes an audit from the Department of Energy Office of Inspector General that found problems with the use of Recovery Act funding in the Industrial Carbon Capture and Storage Program. In addition, the Vice Chair of the House Energy and Commerce Committee, Marsha Blackburn, has introduced legislation imposing additional restrictions on companies that receive federal funding from the Department of Energy, drafted in response to reports that at least one bankrupt recipient of Recovery Act funds is selling its assets to a Chinese auto manufacturer. Both of these events - along with the fact that millions in Recovery Act funding has still not been spent - indicate that both Congress and the Executive Branch will continue to pay attention to the spending of funds for renewable and energy-efficiency projects for some to come.

$575 million in funding awarded non-competitively. The Office of Inspector General (“OIG”) found that $575 million had been awarded improperly, by “non-competitively advancing existing projects” instead of awarding the funds to new ones (page 6). The Department of Energy (“DOE”) was attempting to obligate its funding under the Carbon Program by September 2010, as required under section 1603 of the Recovery Act. To do this, it decided to award additional money to existing projects, rather than identify new ones. Besides being a violation of its own policy, this hurried decision-making left auditors unable to determine if the projects funded merited the additional money.

$18.3 million in questionable, or unallowable, reimbursements. For the sample of awards it reviewed, the OIG found $18.3 million in reimbursements made by the Carbon Program that were either questionable or outright unallowable (page 8). For example, one recipient was reimbursed for pre-award costs of more than $1 million, despite this being expressly prohibited by the DOE. Another was reimbursed for “interest and penalties on underpaid taxes, legal fees associated with valuation of company stock, and other costs related to travel and employee meals that were specifically unallowable under Federal regulations” (Id).

More than $90 million awarded to projects with “technical” or “financial” issues. Also, the OIG found that the DOE awarded more than $90 million in funds to recipients “that had technical and/or financial issues identified during a merit review process – issues that resulted in schedule and/or scope changes that may impact the ability of the Carbon Program to meet intended goals.”

From money being awarded inappropriately to bankruptcy. Meanwhile, Congress continues to pay attention to recipients of grant funding who subsequently declare bankruptcy. A123 Systems, for example, received $133 million in grant funding to make electric car batteries and then declared bankruptcy. As part of bankruptcy proceedings, it is selling many of its assets to a Chinese auto manufacturer. This has prompted both criticism from Congress and at least one piece of legislation in response: H.R. 221, the Stop Mergers, Acquisitions, and Risky Takeovers Supplied by American Labor and Entrepreneurship Act of 2013 or the SMART SALE Act of 2013, sponsored by Congresswoman Marsha Blackburn (R-TN-7), the Vice Chair of the House Energy and Commerce Committee.

The SMART SALE Act requires companies that receive energy funding for innovative research to report if they are being acquired by a non-allied foreign nation, defined to include China, North Korea, and any state sponsor of terrorism. Further, it requires recipients of energy funding to agree to repay the federal government any grants or loans received from a company located in one of these countries. Finally, it also requires the DOE to report whether the acquisition represents a threat to the United States.

More still to come. The OIG Audit notes that $860 million in Carbon Program funds, received through the Recovery Act, have yet to be spent. Further bankruptcy issues may come to light as well, among the other recipients of energy-related Recovery Act funds who have yet to spend this money. All of this points to a busy period of oversight in the next two years.

A River Runs Through It: Congress finds a potential way to fund water infrastructure projects despite sequestration

This post was written by Christopher L. Rissetto and Robert Helland.

The Senate Environment and Public Works Committee (“EPW”) marked up legislation Wednesday that provides millions for dredging, hurricane risk reduction and environmental restoration projects. Normally, Congress providing funds for water infrastructure projects would not seem that remarkable. However, with sequestration cuts impacting defense to domestic spending, as well as a ban in place on earmarking for specific projects, it is remarkable that any legislation authorizing additional infrastructure funds would receive bipartisan support and sail unanimously through a committee mark-up. Credit this to the broad scope of S. 601, the Water Resources Development Act of 2013 (“WRDA”), which reauthorizes the ongoing water infrastructure program run by the Army Corps of Engineers, provides funding for new water projects, and streamlines the environmental review process for all projects. Equally, if not more important to WRDA’s support, is the fact that the funding for all water projects is provided solely from user fees and financing, and not by the taxpayer. WRDA increases this pot of cash by dedicating the entire revenue from the Harbor Maintenance Trust Fund, which normally sees a portion of its revenues diverted to port projects. Altogether, this suggests a new model for infrastructure funding in these days of tight budgets.

Authorizing projects without earmarking them. As noted above, Congress forbids itself from earmarking federal funds to any specific projects. Title 1 of WRDA avoids earmarking any new water projects by authorizing work to proceed on any project where “a report of the Chief of Engineers has been completed and a referral by the Assistant Secretary of the Army for Civil Works has been made to Congress as of the date of enactment” (Section 1002). The EPW Committee notes in its summary of WRDA that this currently represents “18 projects that address all of the major mission areas of the Corps of Engineers including flood risk management, navigation, hurricane and storm damage risk reduction, and environmental restoration.”

Spending a Harbor Maintenance Trust Fund surplus that has reached almost $7 billion by dedicating it to ongoing port projects. The Harbor Maintenance Trust Fund (“HMTF”) was created by Congress in 1986 to pay for the operation and maintenance of harbors and the deepening of channels (Public Law 99-662). It is funded by a tax that is imposed on imports of waterborne cargo, as well as on tickets for cruise ships. However, because of uneven appropriations by Congress, only half of the HMTF’s proceeds go to port projects; the rest is used to help finance the federal government’s activities. Title 8 of WRDA creates the “Harbor Maintenance Trust Fund Guarantee,” which requires that annual expenditures from the fund “shall be equal to the level of receipts plus interest credited…for that fiscal year” (Section 8003(a)). While increasing the level of funding available for ongoing port projects, WRDA also includes a set-aside in Section 8003(b) for ports located in states that contribute “not less than 2.5 percent annually” to the HMTF, but receive less than 50 percent of the total annual amount collected by the State from the HMTF (i.e., smaller ports that lose out in WRDA funding to the larger “mega-ports” located on the East and West Coasts and along the Gulf of Mexico).

Faster environmental review, including intervention by the President if necessary. Title 2 of WRDA would streamline the environmental review process in a number of ways. For instance, it would require the coordinated environmental review of water infrastructure projects by “all Federal, State and local governmental agencies and Indian tribes” that either 1) have jurisdiction over a project; or 2) are required by law to issue a permit or provide an opinion on the project (Section 2045(j)). Any agency that misses a deadline would be penalized $10,000 or $20,000 per week until a decision is made (Section 2045(k)(6)). And the Army Corps of Engineers would be required to work to resolve any delays in the environmental review process. If it is unable to do so, the matter would be referred to the Council on Environmental Quality and, ultimately, the President (Section 2045(k)(5)).

$50 million in annual water infrastructure financing. Title 10 of WRDA establishes the “Water Infrastructure Finance and Innovation Act of 2013” to provide loans and loan guarantees to water infrastructure projects. The goal would be to finance projects with dedicated, non-federal, funding sources (such as user-fees). Sections 10007 and 10008 lay out the types of eligible projects and activities, which include:

  • Flood or hurricane control projects
  • Levees, dams, tunnels and aqueducts
  • Projects for enhanced energy efficiency
  • Repair, rehabilitation, or replacement of a treatment works, community water system or aging water distribution facility

Fifty million dollars is authorized annually for a program to be run by the Army Corps of Engineers and the Environmental Protection Agency (Section 10014(a)).

Perfect Timing? EPW’s mark-up of WRDA comes the same day that the American Society of Civil Engineers (“ASCE”) issued its 2013 “Report Card for America’s Infrastructure,” found at The timing was perfect as the ASCE gave America’s Drinking Water, Levees, and Wastewater infrastructure all grades of “D.” Port infrastructure did slightly better, receiving a “C” grade. This could increase the demand for WRDA reauthorization. Already, we have seen supporters of similar legislation impacting inland waters looking to add this bill to WRDA (Inland Waterways Infrastructure also received a D from the ASCE). Reports also indicate the support from the Senate Democratic Leadership, possibly leading to a vote on the Senate floor soon. Whether similar support can be generated in the House of Representatives remains to be seen. But in a time when Congress’s approval is extremely low, passing a WRDA reauthorization indicates one way for Democrats and Republicans to show they can still do work on behalf of the nation.

So the sequestration cuts have begun. Now what?

This post was written by Christopher L. Rissetto and Robert Helland.

The March 1st sequester deadline has passed with no alternative in place. That means $85 billion in sequestration cuts are underway, as mandated by Congress in the Budget Control Act of 2011 (Public Law 112-240). Even though the cuts to defense and domestic discretionary spending have not fully taken effect, Congress and the White House are already taking steps to modify them as the lobbying efforts by those who face these cuts continue.

The House of Representatives has passed a continuing resolution (“CR”) to fund the remainder of the fiscal year that, while capping spending at sequester-driven amounts, allows the Pentagon greater leeway in implementing the cuts. Senate Democrats want similar measures in place for domestic spending cuts. And the President has met with Republicans to see if a broader compromise on spending and taxes can be reached that would include “mandatory spending” programs, such as Social Security and Medicare. And both the President and the Speaker of the House have taken the option of a government shutdown off the table, should talks fail before the current CR expires on March 27th.

All of this points to a possible broader spending agreement in place that would end the current deadline-driven sequester process. Or not. We will know for sure in the next few weeks.

Raising Revenue Without Taxes: Republicans introduce the Energy Production and Project Delivery Act of 2013

This post was written by Christopher L. Rissetto and Robert Helland.

In a move to coalesce Republican energy demands, and move the energy debate forward, on February 27, Senator David Vitter (R-LA) and Representative Rob Bishop (R-UT-01) stated that they would introduce the Energy Production and Project Delivery Act of 2013.

The bill is intended to address three pressing policies: (1) Energy: by “unleashing domestic energy resources;” (2) Employment: by “creating thousands of well-paying jobs;” and (3) Revenue Generation: by “generating significant federal revenues from energy production.”

Among other things, the bill would require the following:

  • Opening presently closed areas of the Outer Continental Shelf (“OCS”) for mineral leasing;
  • Opening the Arctic National Wildlife Refuge (“ANWR”) for oil and gas production;
  • Expediting judicial reviews of energy products on federal lands, and streamlining environmental reviews;
  • Raising the share of offshore drilling revenues that coastal states currently receive;
  • Preventing the Environmental Protection Agency (“ EPA”) from regulating carbon dioxide under the Clean Air Act (“CAA”) until China, India, and Russia also agree to do so; 
  • Requiring the EPA to do a “full economic analysis of the employment effects of EPA regulation under the CAA; and 
  • Expediting permitting of the Keystone XL Pipeline.

This bill is already supported by, among others, the U.S. Chamber of Commerce, and many other associations and groups. It also has many Republican co-sponsors. With this support, it is likely that this bill will pass in the House. What is less likely are its prospects in the Senate. However, with the federal government facing the fiscal pressure under the sequestration process, any legislation that increases federal revenues cannot be underestimated. Nor, in this economy, can any legislation that increases jobs. Finally, we note that a number of other representatives from coastal states, both Democratic and Republican, have previously supported efforts to increase revenue sharing from off-shore drilling. Republicans clearly hope that this legislation will benefit from these factors and become part of a final energy package signed into law by the President.

Sequestration: Steamrolling Grants for Renewable Energy?

This post was written by Christopher L. Rissetto, Arnold E. Grant and Robert Helland.

The Sequestration steamroller is set to hit March 1, 2013 and we continue to monitor negotiations between the White House and Congress. The impact for Federal Fiscal Year 2013 will be compressed, given that the fiscal year is almost one-half over. While final spending decisions are not yet made, it is clear that federal grant and other assistance programs will be hit by the sequestration cuts. This includes funding for renewable-energy grant programs.

Recently, the Executive Office of Management and Budget (OMB) included the Section 1603 Treasury Grant Program - created within the American Recovery and Reinvestment Act of 2009 (ARRA) - among those subject to the sequester of funds. This proposed action galvanized the renewables industry into lobbying action in an effort to convince the OMB and Treasury Department to rethink this inclusion. In a letter of January 24, 2013, the Solar Energy Industries Association (SEIA) argued that the Section 1603 Program was “unique . . . designed to transfer a financial benefit originating from a tax credit.” The SEIA also argued that the Section 1603 grant payments were very closely analogous to “obligated balances,” which were not subject to sequestration. Limiting amounts received under Section 1603 artificially increases risk, including default risk under federal financing bank loans. Finally, SEIA asserted that, even without actual default, developers and private equity investors would suffer significant financial losses, even though all grant conditions were fully observed.

We see many other renewable industries reaching out as well, in an effort to redefine the law’s impact, including by using the argument that unpaid Section 1603 balances should be considered “obligated” once the facility is placed in service. We expect this debate to intensify as the budget axe begins to fall.

This time I am serious...maybe. Washington lurches to yet another potential deadline on sequestration.

This post was written by Christopher L. Rissetto and Robert Helland.

Sequestration. It’s a process in Washington where thoughtful decisions on spending and taxation priorities are being replaced with last minute politicking, grandstanding, and eventual 11th hour deal-making. The latest showdown revolves around the March 1st deadline agreed to by Congress and the President in the budget deal negotiated in December (Public Law 112-240). That is when about $85 billion is expected to be cut equally from federal discretionary defense and domestic spending accounts. Or not. Like a reluctant swimmer, federal decision-makers keep stepping to water’s edge, dipping their toes in, and then retreating.

Here’s the latest. As we noted in January, the Obama Administration and Republican congressional leaders, led by Vice President Biden and Senate Minority Leader McConnell (R-KY), agreed to a package of tax increases that raised individual and capital gains tax rates, among others. This also delayed the onset of $1.2 trillion in defense and domestic spending cuts mandated by Congress over the next 10 years under the Budget Control Act (Public Law 112-35). The new deadline for these cuts to begin is March 1st. It also reduced the amount needed to be cut for Fiscal Year 2013 from $110 to $85 billion. The question is: What will Congress and the President do now?

Deja-vu all over again. The tortured process of threatened sequestration is being re-lived, bringing to mind Yogi Berra’s famous saying, “It’s like deja-vu, all over again!” Congress and the President are so stalemated over the direction for the U.S.’s spending needs that it seems the only way to force decisive budget action is with a deadline in place. The debt limit has been temporarily taken off the table, with Congress and the President agreeing to legislation that suspends the $16.4 trillion debt ceiling through May 19th (Public Law 113-3). A federal budget for Fiscal Year 2013 has not yet been enacted, with the federal government’s operations instead being funded through – March 27th – by a resolution continuing spending at Fiscal Year 2012 levels (“CR”). Sequester, in other words, is the only negotiating tool each side has. But the results to the country of constantly going through this process are likely damaging. For the fourth quarter of 2012, when the U.S. went through the last spending showdown, Gross Domestic Product declined 0.1 percent, the first decline since the middle of 2009. Reductions in spending decisions, especially those related to defense spending, are blamed for most of the decline. Some contractors are already saying that they are avoiding government contracts, given funding (and policy) uncertainties.

Identifying opportunities in a challenging environment, both before Congress and the Executive Branch. With the impending deadline, Congress has responded by…leaving town. Senators and Representatives are back in their congressional districts and won’t return until next week. This leaves one week to avert cuts all agree will hurt the already slow economic recovery. News accounts indicate Senate Democrats are working towards an alternative package of $110 billion in spending and tax cuts, while Republicans are considering their own plan, which includes about $85 billion in spending cuts and furloughs for federal employees. Votes are possible next week, but with so little time remaining before March 1st, it is possible that a deal to avert the cuts will not be reached in time. If that happens, expect to see attention shift to either re-programming some of these cuts or undoing them altogether. We would note that in addition to the sequestration cuts mandated under the Budget Control Act, the Act also cuts non-defense and defenses discretionary spending by about 10 percent over the next 10 years, through the use of spending “caps” that limit how much money may be appropriated annually. We expect that when the impact of all these reductions is fully felt, through (1) programmatic cuts or (2) furloughs of federal employees or (3) both, Congress will act to either re-program many cuts or undo them altogether. This presents an opportunity to work with Congress and the Executive Branch to protect programs and projects. It also guarantees that the activity leading up to March 1st will not be the last word on how the government spends the federal tax dollar.

Playing On Uncle Sam's Time: Federal Grant Sanctions Triggered By Game Playing Employees

This post was written by Christopher L. Rissetto, Robert Helland and Stephanie E. Giese.

In the Age of Solyndra, adherence to Federal grant requirements is a necessity like never before. Concerns with transparency, misuse of Federal money, program failures, and political embarrassment, all combine to maximize the need for a thorough understanding of grant terms and requirements, and what to do when compliance looks difficult. Careful planning, and pursuit of appropriate grant remedies, can avoid significant grant repayment demands, or worse, from the Federal Government.

On February 8, 2013, the U.S. Department of Energy Office of Inspector General issued a Special Report, (OAS-RA-13-10) detailing the mismanagement behind the award of some $150 million in DOE grant funds, under the Vehicle Technologies Program, to help construct a $304 million lithium ion battery manufacturing plant in Holland, Michigan. The intended result of the project was to create a minimum of 440 jobs, and produce batteries annually to equip some 60,000 electric vehicles by the end of 2013.

No batteries but time for game playing. The DOE IG found that, despite the award of some $142 million, the grantee had yet to manufacture any commercially available battery cells that could be sold for use in electric vehicles. In fact, only 60% of the required production capacity was constructed, and the grantee said another $22 million in grant funds was needed to complete the work. Instead, due to higher than expected labor costs, a lower than expected marketplace for batteries, and the ability of available supply to meet available demand, many employees “spent time volunteering at local non-profit organizations, playing games and watching movies during regular working hours.” The net result – so far – is repayment of some $842,000 in unallowable costs by the grantee back to the DOE.

Ignorance of the law is no defense. The principal mistake the grantee said that it made was not being familiar with DOE grant requirements (contained in 10 C.F.R. Part 600). Specifically, the grantee said that it did not know that Davis-Bacon wage rates applied to subcontractors. Such rates were a major reason for the cost escalations for this project. Further, as project performance deteriorated, the grantee scheduled furloughs and other things for the trained workers to do so that its skilled work force would not be lost. The DOE IG said that these management type decisions, while understandable from a business perspective, did not confer a public benefit and should not have been reimbursed.

And the granting agency shared in the blame. Finally, the DOE IG pointed to significant mismanagement by the DOE National Energy Technology Laboratory (“NETL”). NETL failed to monitor work progress and the financial impact of compliance with imposed labor standards.

“Grantee beware”. The message to be taken from this difficult case is that a grantee must be aware of the scope of Federal requirements that attach to its grants (and contract, cooperative agreements and the like), and their cost and performance impacts. A careful grantee needs to begin being careful when it reviews the actual grant agreement that will bind its performance. Some additional conditions and protections might be negotiated, for example. And, when difficulties begin to arise, seeking grant amendment, or other remedies early in the process can save much damage later. Finally, even in the worst of circumstances, a number of options might be available to non-performing grantees, including through administrative actions, legislation relief, and, ultimately, other venues. It is important to always recall that Inspector Generals are not always correct in their understanding of the law, and, among other things, might create their own “new rules” to achieve what amounts to a quasi-policy outcome. The watch-words when dealing with Federal grants are be careful.

Sequestration 2013: Contractors, Beware the Kalends of March

This post was written by Christopher L. Rissetto, Carlos Aksel Valdivia, and Robert Helland.

As many inside the Beltway know, the Budget Control Act of 2011 imposes automatic and wide-reaching cuts if the U.S. government fails to reach an agreement on fiscal policy (commonly known as sequestration). Unless Congress acts, the President is required to order cuts of approximately $85 billion from the federal budget on March 1, 2013. But it is not just statesmen who are feeling the pressure; agencies, too, have to decide how to interpret and implement cuts. In a memo to agency heads, OMB Deputy Director for Management Jeff Zients outlined some principles to guide agency preparation for sequestration, including hiring freezes, releasing temporary workers, creating separation incentives, and implementing furloughs.

The risk of terminations and furloughs raises the possibility that contracting officers may feel the pressure to terminate certain government contracts. The Pentagon recently issued a memo instructing DOD agencies that they are authorized to plan for furloughs and must clear with the Undersecretary of Defense for Acquisition, Technology and Logistics, all R&D and production contracts that are worth more than $500 million. Adding to the pressure to terminate contracts and contractors are calls from the unions that want agency furloughs to affect contractors before reaching federal workers. We will know in the coming days how other agencies will handle sequestration, but in the meantime, federal contractors should beware the Kalends of March.

Read our previous post on this matter here.

The President's proposal on guns: More or less than meets the eye?

This post was written by Christopher L. Rissetto and Robert Helland.

In response to the tragic shootings in Newtown, Connecticut, President Obama has proposed 23 Executive Actions to deal with gun violence. If fully enacted, these proposals would address gun violence by providing additional funds for security measures at schools; tightening background checks for gun purchases, including requiring checks for gun transactions conducted by private sellers; increasing research efforts on gun violence by the Centers for Disease Control and other agencies; banning armor-piercing bullets; and reinstating the ban on assault weapons, among other measures. With these proposals, the Obama Administration appears to be offering a variety of responses to the recent episodes of gun violence, including both “carrots” and “sticks.” For example, in the area of background checks, the Obama Administration would require criminal background checks for all gun sales (stick). But it would also propose $20 million funding from the Department of Justice in 2013 to encourage states to share criminal and relevant mental health records (carrot). It would additionally sidestep the question of whether schools should have armed guards and instead propose $150 million for up to 1,000 additional safety personnel in schools, with the decision left to schools as to how to best use the funds.

This “go for broke” strategy reflects what gun control advocates, law enforcement personnel, and local elected officials have requested of the White House. It also reflects the reality that there is little the President can do unilaterally. But a greater reality is that the gun debate, at least for the moment, has been altered. And with Congress facing record low approval ratings in the aftermath of the ongoing sequestration debate, there is going to be pressure for consensus on some matters.

In other words, with the 113th Congress only just beginning, and the President no longer facing re-election, anything is possible.

If you Enjoyed the Fiscal Cliff, then You will Love the Sequel(s)

This post was written by Christopher L. Rissetto, Robert Helland and Gunjan Talati.

Congress and the Obama Administration have driven the economy from the “Fiscal Cliff,” with the last-minute tax and spending deal that is expected to be signed into law. But it’s a Pyrrhic victory: the battle over taxes and spending will go on (and on) into 2013, with decisions needed to be made again on raising the debt limit and how to spend the federal dollar.

Here are highlights as to what was agreed to:

  • Income tax rates will rise, for families with income of more than $450,000 and individuals making more than $400,000. Those with taxable income in excess of these thresholds will now pay tax on the excess at 39.6%, instead of 35%. President Obama had wanted rates to rise for those making more than $250,000 ($200,000 for individuals) while House Speaker Boehner (R-OH-8) proposed rates to rise for those all earning more than $1 million.
  • Capital gains tax rates will rise from 15% to 20%, also for families with income of more than $450,000 and individuals making more than $400,000.
  • The estate tax rate will be 40% for those at the $450,000/$400,000 threshold, with a $5 million exemption that is indexed to inflation.
  • The $109 billion in sequestration cuts expected to take effect January 1 will now be delayed two months.
  • The Alternative Minimum Tax will be permanently adjusted to avoid raising taxes on middle class taxpayers.
  • All “tax extender” measures – from those promoting alternative energy development to those promoting research and development efforts by businesses – are extended for one year.
  • Medicare rates will be adjusted so that a 27% cut in physician reimbursement would not occur (the so-called Medicare “doc fix”).
  • Benefits for the long-term unemployed will be continued.
  • The 2% decrease in the payroll tax will expire.

But the delay in sequestration is just that. In two months, Congress and the President will have to again decide whether to allow the $1.2 trillion in cuts to domestic and defense spending to begin. And the pressure to cut additional funds from the budget – or raise additional revenue – will intensify, given that come the end of February, the federal government will have to again raise the federal debt ceiling. Thus, it is still prudent for contractors to continue making preparations for sequestration.

So this is a deal that avoids some of the pain, but leaves a lot of it to be decided by the next Congress, which will be sworn in January 3 at noon.

With many new members arriving, the 113th Congress will likely have different ideas on the debt limit and budget issues, and will no doubt take different steps to address them.

All of which will make 2013 as eventful as 2012.

2012 Elections Results and After: Congressional Actions Anticipated

This post was written by Christopher L. Rissetto and Robert Helland.

As the last outstanding Congressional races are being decided, we note what has not changed as a result of the 2012 elections. For one thing, the Democrats still control the White House and Senate and the Republicans still control the House of Representatives. For another, none of the issues facing Congress and the President – put on hold for the campaigns – have left. Decisions still need to be made on appropriate tax and spending levels; the implementation of a federal budget for the remainder of the fiscal year; long-term support levels for our nation’s farmers; the ongoing implementation (and funding) of the Patient Protection and Affordable Care Act (Public Law 111-148); and the support of renewable energy. Some of these decisions are more pressing than others and the most pressing of all will be to decide the correct level of taxes and spending that will keep the economy from recession on January 1st. Congress will address these concerns in the Lame Duck session expected to begin soon and it is possible that many other pending matters will be taken up as well as part of so-called “Grand Bargain”.

How each side interprets the results, and whether they have a mandate or not, remains to be seen. But it is clear that the time for procrastinating is over. Expect major decisions to be made in the next few months, when Congress returns for a Lame Duck session and then in the 113th Congress.

Second Circuit Holds that Proper Measure of FCA Damages for Grant Recipient is the Full Amount of the Grant

This post was written by Christopher L. Rissetto, Andrew C. Bernasconi and Nathan R. Fennessy.

In a troubling decision that could have significant implications for grant recipients, the Second Circuit recently held that the proper measure of damages in a False Claims Act (“FCA”) case against a grant recipient is the full amount of the grant, regardless of any benefit that the government may have received. United States ex rel. Feldman v. van Gorp, --- F.3d ----, 2012 WL 3832087 (2d Cir. Sept. 5, 2012). In reaching its decision, the Second Circuit joined the Fifth, Seventh, Ninth, and D.C. Circuits in finding that the proper measure of damages in cases of FCA violations by federal grant recipients is the full amount of the grant because “the government receives nothing of measurable value when the third-party to whom the benefits of a governmental grant flow uses the grant for activities other than those for which funding was approved.”

In Feldman, the relator, a former student in the fellowship grant program at Cornell University, brought the action against Cornell and the psychiatry professor that applied for the grant from the National Institute of Health (“NIH”) for the fellowship research and training program in the neuropsychology of HIV/AIDS. The government declined to intervene and the relator pursued the case. The relator presented evidence at trial that the actual fellowship program deviated in material respects from how it was described in the grant application to NIH, including that faculty identified as “Key personnel” did not participate in the program; core courses identified in the application were not regularly conducted; and much of the research that was performed under the grant program had no relation to HIV or AIDS at all. A jury found the defendants not liable for false statements in the initial grant application and the first renewal application, but found liability based on the renewal applications for the third, fourth and fifth years of the grant. Pursuant to the FCA statute, the district court, in calculating damages, trebled the amounts NIH paid for the last three renewal years of the grant to a total of $855,714, and added attorneys’ fees, costs, and expenses to bring the total damage award to more than $1.5 million.

The defendants argued the court should have applied a “benefit of the bargain” calculation to determine the difference between the value of the training promised and that actually delivered. The court, however, concluded the full amount of the grant was the proper measure of damages because “the government has entirely lost its opportunity to award the grant money to a recipient who would have used the money as the government intended.”

This result should put grant recipients on notice that a failure to deliver the services as promised may result in liability for the full amount of the grant, trebled in accordance with the FCA. Although the government declined to intervene in this case, grant recipients should be aware that the government may use this outcome as a means to enforce grant requirements in the future.

"On the brink of the "Fiscal Cliff," we get a better idea of what life might be like on January 2, 2013"

This post was written by Christopher L. Rissetto, Robert Helland and Gunjan Talati.

As the presidential and congressional campaigns continue toward their conclusion on Election Day, November 6, there is another – perhaps more compelling – date to consider: January 2, 2013. That is the date that massive federal spending cuts mandated under the “sequestration” process are expected to begin. The combination of these spending cuts and the expiration of tax breaks also expected to take place by January 2 has been termed the “Fiscal Cliff” for the United States economy, with a return to recession on the other side. With the calendar approaching January, pressure continues to build on Congress to do something to prevent this from happening. The biggest development in this area is a report compiled by the Office of Management and Budget (“OMB”), which was required by Congress in the Sequestration Transparency Act of 2012 (Public Law 112-155) (found at OMB has calculated that to reach the $1.2 trillion in cuts to defense and non-defense spending required over the next 10 years, the federal budget must be reduced by an annual amount of $109 billion (factoring in interest savings generated by the cuts). This translates into a cut of 9.4% in defense spending levels and 8.2% in non-defense spending levels that would take effect on January 2nd.

Fewer Blackhawk Helicopters; Border Patrol Agents; Air Traffic Controllers; Children in Head Start and less inspection of meat and poultry, to name a just few things.

OMB in its report breaks down the cuts from the sequestration process over the many agencies of the federal government, as required by Congress. But Congressman Norm Dicks (D-WA-6), the Ranking Member of the House Appropriations Committee, has released a report in a “Dear Colleague” letter to Congress that shows what those cuts would mean in terms of terms of reductions in procurement; personnel furloughed; and government services diminished. For example, the cuts in the Department of Defense’s Procurement Account “would mean 8 fewer UH-60 Blackhawk helicopters and 5 fewer CH-47 Chinooks, slowing Army plans to modernize its utility and heavy lift helicopter fleet”. Cuts to the Department of Homeland Security’s budget would mean 3,400 fewer Border Patrol agents which would “significantly impact progress along the Southwest Border”. The Federal Aviation Administration (“FAA”) would need to “lay off more than 2,200 employees, including air traffic controllers, technicians, and support staff”, which would most likely reduce the number of flights per day across the country. 100,000 fewer children would be enrolled in Head Start and the furlough of inspectors at the Food Safety and Inspection Service (“FSIS”) would impact the hours at slaughter and processing plants, which cannot operate without them, and as a result, raise the cost of cost of meat and poultry.

Other reports indicate the impact of sequestration on the economy and on jobs. The American Institute of Architects has released a report concluding that design and construction industry could face more than $2 billion in lost work, due to the reduction of design and construction projects at the agency level (found at  The Congressional Budget Office (“CBO”) forecasts the United States economy will fall back into a recession, “with real [Gross Domestic Product] declining by 0.5 percent between the fourth quarter of 2012 and the fourth quarter of 2013 and the unemployment rate rising to about 9 percent in the second half of calendar year 2013” (found at

Look to the Lame Duck Session.

All of these projected impacts to the federal government and the economy points Congress acting to undo the effects of sequestration, likely as part of a “Grand Compromise” on spending cuts and taxes passed during a Lame Duck Session of Congress. This is expected to begin during the first weeks after Election Day. This will obviously be affected by the results of Election Day but action will still happen.

Van Hollen v. FEC Follow-up: Decision to Defend Campaign Finance Regulation Shows Split within FEC

This post was written by Christopher L. Rissetto and Carlos Aksel Valdvia.

Two weeks ago we wrote about Rep. Van Hollen (D-MD) challenging the FEC’s electioneering communication disclosure provisions and the appellate court’s decision to refer the matter to the FEC. In response, the FEC yesterday filed a status report with the District Court for the District of Columbia, indicating that it would not pursue further rulemaking and instead defend its disclosure regulations. Those regulations currently allow political groups responsible for campaign ads to avoid disclosing donor information.

But of particular interest is what accompanied the FEC’s press release: three separate statements by the FEC Commissioners that represent a voting bloc favoring rulemaking and increased disclosure (Vice Chair Ellen L. Weintraub’s statement, Commissioner Steven T. Walther’s statement, and Commissioner Cynthia L. Bauerly’s statement). The statements not only reflect the FEC’s inability to reach the four votes needed to undertake further rulemaking on this question, but also the history of electioneering communication disclosure. Vice Chair Weintraub cited the decline in disclosure as evidence for the need to pursue rulemaking:

From the time the electioneering communication provisions of the Bipartisan Campaign Reform Act of 2002 (BCRA) took effect until [FEC v. Wisconsin Right to Life (“WRTL”)], nearly 100% of groups that reported electioneering communications also disclosed their donors. Following WRTL and the Commission’s subsequent rulemaking, that number dropped to less than 50% in 2008. In the 2010 election cycle, nearly two-thirds of groups reporting electioneering communications failed to disclose their donors. (Emphasis in original)(citations omitted).

Moreover, a divide persists within the FEC that predates the Van Hollen decision. Commissioner Bauerly wrote:

We’ve been here before and this would appear to be our third strike. It seemed obvious to me after Citizens United and v. FEC, that we should have reevaluated several of our reporting rules. In January of 2011, the Commission considered two competing notices of proposed rulemakings (NPRMs) responding to Citizens United, neither of which received a majority of the Commission’s votes. (Citations omitted).

Commissioner Walther echoes the dismay:

Unfortunately, the third time is not “a charm” in this instance.

It will be interesting to see whether the three other FEC Commissioners disclose their thoughts on the matter. Regardless of their response, the question seems ready for more litigation at a time when political ads dominate the airwaves.

Federal Court of Appeals: Political Groups May Maintain Donor Information Secret, For Now

This post was written by Christopher L. Rissetto and Carlos Aksel Valdvia.

Yet another wrinkle has developed in the fabric of campaign finance reform, this time favoring the non-disclosure of donor information by groups responsible for “electioneering communications.” In a per curiam decision, the three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit recently reversed a lower court decision that could have forced some political groups to identify all contributors, regardless of whether their contributions were earmarked for campaign advertisements. The dispute arose when the Federal Election Commission seemed to narrow the requirements of the Bipartisan Campaign Reform Act (“BCRA”).

The BCRA, also known as McCain-Feingold, required every person who paid more than $10,000 annually for campaign ads to report the names and addresses of “all contributors who contributed an aggregate amount of $1,000 or more . . . .” 2 U.S.C. § 434(f)(1), (f)(2)(F). However, after the Supreme Court’s 2007 decision in FEC v. Wisconsin Right to Life, Inc. (“WRTL”), the FEC promulgated rules that required the above disclosure only when the donation was “made for the purpose of furthering electioneering communications.”

The current dispute arose in 2011 when Rep. Christopher Van Hollen (D-MD) challenged the FEC’s disclosure rules. Rep. Van Hollen argued that the FEC rule created a loophole, allowing political groups to avoid disclosure unless their donors specifically earmarked their contributions for the use of campaign ads. In response, the FEC noted that the disputed rule addressed an ambiguity in the BCRA created after the Supreme Court’s decision in WRTL. Ultimately, the Court of Appeals was persuaded that the changes wrought by WRTL and Citizens United rendered the BCRA ambiguous on this precise question, raising the question of whether to defer to the FEC’s interpretation of the disclosure rules.

Under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., whether deference is owed to an agency’s interpretation of a statute it administers depends on: (1) whether the statute evinces the intent of Congress; and (2) whether the agency’s interpretation manifests a permissible construction of the statute, if the statute is ambiguous. Having found the statute to be ambiguous, the FEC’s disclosure rules have survived the first question. However, the FEC did not participate in the appeal, preventing further analysis under the second question.

Whether these disclosure regulations will survive the second part of Chevron analysis depends in part on how the FEC responds now that the matter has been remanded to the District Court. The Court of Appeals has instructed the FEC to promptly advise the District Court whether it will undertake additional rulemaking, or defend its current regulations and subject them to additional judicial review. Either choice will likely continue to attract the interest of political groups and invite further argument inside and out of court, but the question will likely not be resolved by November.

Whistle While You Work: The Non-Federal Employee Whistleblower Protection Act of 2012

This post was written by Christopher L. Rissetto and Leslie A. Monahan

On September 13, 2012, Rep. Jackie Speier (D-CA), along with Rep. Todd Platts (R-PA), introduced the Non-Federal Employee Whistleblower Protection Act of 2012 (H.R. 6406). This legislation is designed to reduce fraud within the government and save taxpayer dollars by expanding the whistleblower-protections covering to federal contractors, subcontractors and grantees.

In its final report issued to Congress, the Commission on Wartime Contracting in Iraq and Afghanistan estimated that by 2011, as much as $60 billion had been lost to contractor fraud and waste in America’s operations in Iraq and Afghanistan. The sponsors of the bill believe that in order to prevent such gross waste from continuing, federal contractors and grantees need to report such wrongdoing with federal funds.

According to Rep. Platts, the proposed legislation would provide "meaningful protections for contract workers who have the courage to blow the whistle, at the risk of their own careers, on waste, fraud, and abuse within the government."

The bill is designed to help facilitate these types of disclosures by providing non-federal employees protection against forms of retaliation, including demotion, discrimination and discharge. Specifically, the legislation sets up a procedure for investigating claims of persons who reported wrongdoing and were subjected to reprisal. Under the proposed procedure, such individuals may submit a complaint regarding the reprisal to the appropriate agency inspector general ("IG"). The IG generally has 180 days to investigate and make a determination on the complaint, and must provide the person alleging the reprisal access to the investigation file. If the IG determines that evidence supports a prohibited reprisal, the claimant’s employer must abate the reprisal, reinstate the employee, or pay the employee the costs incurred in bringing the complaint. In cases where the reprisal was found to be willful or malicious, the employee may receive 10 times the amount of his or her lost wages and other compensatory damages.

The proposed bill has companion legislation (S. 241) in the Senate cosponsored by Sens. Claire McCaskill (D-MO), Jim Webb (D-VA), and Jon Tester (D-MT). The House hopes that its version will receive bipartisan support and will be passed sooner rather than later.


Congress And The Fiscal Cliff: Important Issues To Be Faced

This post was written by Christopher L. Rissetto and Robert Helland.

America’s economy faces the returning 112th Congress in September, and later in the post-election Lame Duck. Budget and key policy legislation issues must be addressed if there is any hope of avoiding massive automatic budget reductions. The need to seek beneficial compromise is understood by all Members. Can this be accomplished?

 Please click here to continue reading on the Health Industry Washington Watch.





Montana's Lesson of the Day: Corporations Are People, Too

This post was written by Christopher L. Rissetto, Lorraine M. Campos and Leslie A. Monahan.

By refusing to hear arguments over whether a state can limit campaign spending by corporations, the Supreme Court refused to reconsider its decision in Citizens United v. Federal Election Commission on Monday. In a 5-4 ruling, the court struck down a century-old Montana ban on corporate political money. By doing so, the high court held that there is no exception to Citizens United at the state and local level.

Since the Citizens United decision in 2010, a new dawn on corporate political spending has been playing out in federal election campaigns. Citizens United held that prohibiting corporations and labor unions from making independent expenditures on electioneering communications violated the First Amendment’s free-speech protections. Accordingly, Citizens United reversed decades of statutory and case law that prohibited corporations from using their general treasuries to fund “express advocacy,” which is direct political advertising against candidates for federal office. However, until Monday, the impact of the decision was only seen at the federal level.

With the high court’s decision in American Tradition Partnership Inc. v. Bullock, the Court has erased any ambiguity as to whether Citizens United applies to state and local laws. In American Tradition Partnership Inc., three corporations challenged the legality of Montana’s long-standing state prohibition that barred corporations from making political expenditures in connection with candidates in the wake of Citizens United. This prohibition was upheld by the Montana Supreme Court on the basis that it was justified by the state’s interest in preventing corporate influence in state elections. The three corporations appealed and emerged victorious with the high court’s summarily reversal of the Montana court’s ruling.

This latest Supreme Court decision illustrates that in the post-Citizens United world, campaign finance reform continues to evolve and stretch its reach. Those attempting to navigate this new realm of election law should anticipate further endorsements for campaign finance deregulation in federal, state and local elections.

Money For Nothing: Sen. Coburn's Report on $70 Billion Available Federal Grant Dollars

This post was written by Christopher L. Rissetto and Robert Helland.

The Public Policy & Infrastructure practice has often discussed the availability of unused or “returned” grant funds. This means that often not all grant funds are fully obligated (or obligated at all because of various problems in the award process); some grant amounts must also be "returned" because of eligibility and allowability decisions, and for audit-based decisions (often by federal inspector generals). The potential availability of these funds is often not publicized. Sen. Tom Coburn (R-Okla.), however, shines a spotlight on them as part of a greater oversight report from his office that finds more than $70 billion available in unspent federal funds. Sources of these funds range from expired and inactive grant accounts to unused or unclaimed funds remaining at the programmatic level. As Fiscal Year 2012 draws to a close, federal agencies will work hard to spend these un-obligated balances remaining on their books. Opportunities may be available, however, to seek to access such funds.

For a more detailed analysis, please click here to read the issued Client Alert.

Time to Look to Washington, D.C.: Political and Regulatory Expectations for the 112th Congress, the Lame Duck Session, and Beyond

This post was written by Christopher L. Rissetto and Robert Helland.

Notwithstanding popular perceptions, Congress and Federal agencies are considering, and could decide, a number of budget, funding, and regulatory matters within the next few months. Further, for at least one of the critical time periods for possible action, Members (and agency officials) may be focused on achieving the ends of certain partisan goals. One can almost hear the great monologue of Jefferson Smith (from, Mr. Smith Goes to Washington), “And you know that you fight for the lost causes harder than for any others. . . . Somebody’ll listen to me!” During this time, energy and natural resource client interests can be carefully advanced by recognizing the currents on the Hill, and the recognized imperative to accomplish certain legislative and administrative goals.

For a more detailed analysis, please click here to read the issued client alert.

Deadline approaching for key Congressional action on Temporary Tariff Reductions

This post was written by Christopher L. Rissetto and Robert Helland.

Key committees in Congress have announced that they will consider requests from Members to temporarily reduce or suspend tariffs on certain imported products as part of a Miscellaneous Tariff Bill ("MTB") that is expected to be considered by Congress later this year.

Congress regularly takes up and passes MTBs as an effort to boost the competitiveness of domestic manufacturers by lowering the cost of imported inputs. As part of that process, it first considers requests from Members seeking to assist companies located in their districts.

Any manufacturing client that relies on imports as part of its manufacturing process can work with Congress to see that a certain product or chemical is included in the latest MTB.

The process involves drafting legislation and a review by the International Trade Commission, Department of Commerce; and Customs and Border Protection. It also involves the opportunity for public comment.

Criteria listed by the House Ways and Means and Senate Finance Committees indicates that a tariff modification (such as a duty suspension or reduction) must:

  • Be non-controversial
  • Cost less than $500,000 per year
  • Be administrable

Additional restrictions exist, such as the requirement in the House of Representatives that tariff bills must not be of limited use, i.e., benefiting 10 or fewer manufacturers.

The first key deadline is quickly approaching. Members of the Senate and House of Representatives must draft standalone legislation seeking the tariff reduction, and must do so by this Monday, April 30.

Protecting the Yard -- EPA Compliance Orders Made Reviewable

This post was written by Christopher Rissetto and Jennifer Smokelin.

The U.S. Supreme Court spoke with one voice in recognizing the right of a husband and wife -- who sought to build a house on their property and were directed by EPA to remove initial fill materials as their land allegedly contained wetlands -- to seek judicial review of an agency compliance order, without further delay under the Administrative Procedure Act (APA).

Please click here to read the full post on our sister blog, Environmental Law Resource.

ISDA determines Credit Event occurred in Greece

This post was written by Georgia Quenby, Brett Hillis and Rosanne Kay.

The EMEA Determinations Committee of the International Swaps and Derivatives Association (ISDA) met on Friday last week (9 March) to discuss the Greek debt swap deal and to determine whether the deal amounts to a “Restructuring Credit Event”, thus triggering settlement under credit default swaps (CDS) referencing the Greek sovereign. The Determinations Committee decided that a “Restructuring Credit Event” has occurred.

For a more detailed analysis, please click here to read the issued client alert.


Don't Miss Your Opportunity to Comment on OMB's Government-Wide Grant and Cooperative Agreement Reforms

This post was written by Christopher L. Rissetto and Stephanie E. Giese.

The Office of Management and Budget (“OMB”) recently proposed government-wide reforms to federal policies that could significantly impact organizations (other than for-profit organizations) performing federal grants and cooperative agreements. See Reform of Federal Policies Relating to Grants and Cooperative Agreements; Cost Principles and Administrative Requirements (including the single audit Act), 77 Fed. Reg. 11,778 (Feb. 28, 2012). The proposed reforms were published by OMB in an Advance Notice of Proposed Guidance (“ANPG”) and are intended to:

…standardize information collections across agencies, adopt a risk-based model for Single Audits, and provide new administrative approaches for determining and monitoring the allocation of Federal funds.

For a detailed analysis, please click here to read the issued Client Alert.

A Road to Nowhere? Will Congress ever send a long-term transportation funding bill to the President's desk?

This post was written by Christopher L. Rissetto and Robert Helland.

The recent activity in the House of Representatives on a $260 billion, five-year transportation authorization bill, raises hope that Congress would finally enact a long-delayed successor to the SAFETEA-LU surface transportation law. This would be a relief to all those who seek a long-term source of funding to help repair and replace the nation's deteriorating roads, rails, and bridges. But don't stick that shovel in the ground just yet. With a divided Congress and an election looming, it is easy to see this train getting de-railed, at least until 2013.

SAFETEA-LU should have been re-authorized by September 30, 2009. The reason for the almost three-year delay is the lack of revenue flowing into the Highway Trust Fund ("HTF"), which is the biggest source of funds to pay for surface transportation projects. H.R. 7, the "American Energy and Infrastructure Act" ("Act"), includes a number of "pay fors" to help make up for this. However, they come with their own concerns. For example, the Act would find new revenue by opening up sections of the outer Continental Shelf to oil drilling, something that many Members of Congress from coastal states oppose. In addition, the Act would open up sections of the Arctic National Wildlife Refuge ("ANWR") to oil drilling, also a hot button issue. And it would change the rules regarding pension contributions for federal employees, which has generated its own level of opposition.

It is for this, as well as other reasons, that House Democrats are reported to be in almost unanimous opposition to the Act, with a number of Republicans opposing it as well. It is perhaps for these reasons that House Speaker John Boehner (R-OH-8) has announced (1) that the vote on the Act will be delayed until the House returns from its week-long Presidents' Day recess; and (2) the major components of the Act will each be voted on separately, rather than as a comprehensive measure. And if the Act even passes the House, it faces opposition in the Senate, which is working on its own two-year re-authorization bill (S.1813, the "Moving Ahead for Progress in the 21st Century Act" or "MAP 21"), which has a lower price tag ($109 billion). And even if it passes the Senate intact, the Act faces a veto threat from the White House.

All of this indicates a lot of political posturing, and significant uncertainty, in advance of the fall campaign season. With funding remaining a concern, however, leveraging public funds with private funds will likely need to be a component of any transportation proposal to reach the President's desk. Such measures as the "greater use of existing federal financing programs, the creation and capitalization of state "infrastructure banks" to provide financing for projects, and policies that will attract private sector investment i.e. through public-private partnerships," are common to the Act and enjoy bipartisan support in the House and Senate. Just don't expect them to become law anytime soon.

Get ready for a whole new round of subpoenas from Capitol Hill. House Oversight and Government Reform Chairman Issa promises to put the grant award process in the spotlight.

This post was written by Christopher L. Rissetto and Robert Helland.  

Numerous press reports indicate that House Oversight and Government Reform Chairman Darrell Issa (R-CA-41) intends a broad investigation of the federal grant and loan application process, in the wake of the recent bankruptcy of the solar company, Solyndra. Up until now, the primary committee in the House investigating and holding hearings on the decision to award $535 million in loan guarantees to Solyndra has been the House Energy and Commerce, Subcommittee on Oversight and Investigations, chaired by Rep. Cliff Stearns (R-FL-6). It held a recent hearing with Energy Secretary Steven Chu, where committee members grilled the Secretary on the Department’s decision to restructure the terms of the loan guarantee to favor private investors, and whether that was influenced by political considerations. As a result of that hearing, Chairman Stearns has called for Secretary Chu’s resignation. And as investigation continues, both Chairman Stearns and full committee Chairman Fred Upton (R-MI-6) are pressing the White House for additional documents on the loan guarantee, as well as the testimony of senior White House staff.

But what Chairman Issa promises is a broader investigation – not just into Solyndra, but also into the federal investment in renewable energy, and possibly beyond. We have seen evidence of this broader line of inquiry in a recent hearing by Oversight and Government Reform into possible politicization of grants at the Department of Health and Human Services Office of Refugee Resettlement. In fact, it seems as if Mr. Issa is planning on looking at the entire Federal assistance apparatus, to determine if merit, and not politics, count for final award decisions. As a result, all loan guarantees and grants could come up for review, especially those to entities facing financial difficulties. Administration officials, and executives, should be ready for the subpoenas.


Your Monthly Threat of Government Shutdown?

This post was written by Christopher L. Rissetto and Bob Helland.

Those of us who follow the Hill are beginning to feel like Bill Murray's character in Groundhog Day: waking to news of another potential shutdown, we wonder if we will spend the next 13 months until November 2012 in a state of permanent impending doom. Most remember the partisan bickering over spending levels that almost closed the federal government earlier this year. Last week the House failed to pass a continuing resolution that would have temporarily funded the federal government at $1.043 trillion, in order to provide additional time for Congress to pass the 12 spending bills needed to fund the federal government for the entire year. Many Republicans balked because they wanted lower amounts agreed to in an earlier budget resolution passed by the House. Most House Democrats on the other hand, opposed the bill because some of the funds for disaster relief efforts were offset by cuts to a government program that supports the production of energy-efficient cars.

While Republican leaders promise there won’t be a shutdown, the threat of one throughout the year has had continuing implications for federal contractors and employees. Under the Anti-Deficiency Act, agencies may not obligate the government to spend money exceeding amounts lawfully appropriated to date. Lorraine Campos and Joelle Laszlo provide six strong recommendations to government contractors in "Preparing for a Federal Government Shutdown". Since the end of the Federal Fiscal Year is September 30th, one thing we can say here is that Federal contractors and grantees would be well-served to submit, and have received by the government, payment requests by that date. Of course, if the government hasn't also paid by that date, you can expect a delay as the funds technically expire and confusion reigns.

President Obama's jobs plan proposes spending on infrastructure. What will Congress do?

This post was written by Christopher L. Rissetto, and Robert Helland.

Earlier this month, President Obama proposed a $447 billion package of tax cuts and new spending to help the economy. In a joint session to Congress, the President laid out the terms of his proposal, which includes over $100 million for upgrading highways; mass transit; rail, both freight and intercity; aviation; schools; and local neighborhoods - both by direct expenditure as well as through financing. Since then, the President has hit the road to build support.

Coming at a time when Congress is considering at least $1.2 -$1.5 trillion in cuts to the federal debt, it would seem that any proposal for additional infrastructure spending would seem – at the risk of understatement - difficult to pass. However, unemployment continues to remains high. In addition, there is a pent up demand at the state and local level for funds, given Congress’ failure to date to re-authorize the multi-year transportation program known as SAFETEA-LU and the fact that the nation’s infrastructure continues to earn low grades from groups such as the American Society of Civil Engineers. As a result, it is worthwhile to take a look at the President’s infrastructure proposal to see which elements might have a chance in Congress.

Over $100 billion for infrastructure investment. The President proposes to spend

  •  $50 billion for highways, transit, rail and aviation projects;
  • • $25 billion for school infrastructure, including such projects as greening and efficiency upgrades and new science and computer labs;
  • $15 billion for rehabilitating vacant and foreclosed homes and businesses;
  • $5 billion for modernizing community colleges, including tribal colleges.
  • $10 billion to create a “National Infrastructure Bank”. The President also wants $10 billion for the establishment of a National Infrastructure Bank to “invest in a broad range of projects of national and regional significance” (

The President proposes, Congress disposes. As we noted, new infrastructure spending - during a time when the focus is on the nation’s debt - may seem a stretch. And politics plays a factor – no surprise here – when Congress considers any legislation. However, there has been some movement in Congress on the need to spend more, especially on transportation projects, which have a dedicated source of funding in the fuel tax. For example, both Congressman John Mica (R-FL-7) and Senator Boxer (D-CA), chairs of the respective congressional committees, have offered separate proposals to re-authorize SAFETEA-LU, which derives most of its funding from the 18.4 cent tax paid at the pump. In addition, Congress is currently considering a 6 month “clean” extension of SAFETEA-LU – independent of re-authorization efforts – that would continue to fund highway and mass transit programs at current level. H.R. 2887, the Surface and Air Transportation Programs Extension Act of 2011, passed this week in the House of Representatives by voice vote and is expected to face a similar vote in the Senate.

But if the appetite for more infrastructure spending is limited, there are a number of financing proposals in Congress similar to the President’s call for an infrastructure bank, including: S. 652, the Build Act, sponsored by Senator Kerry (D-MA); and S. 1300, the Lincoln Legacy Infrastructure Development Act, sponsored by Senator Mark Kirk (R-IL). Each would provide $100 million in seed money for grants and low interest loans for transportation projects. In fact, the Kerry bill was the basis for the President’s proposal.

While we know that House Transportation and Infrastructure Chairman Mica has expressed his opposition to the President’s Infrastructure Bank proposal, the actions of these other members of Congress and the President show that, in a challenging economic environment, infrastructure financing remains an option for policy makers looking to promote economic activity in general as well as create jobs.


Regulatory Round Up 9.19.11.


Brother, can you spare a dime? With Members of the "Super Committee" appointed, work begins in earnest to find $1.2 to $1.5 trillion in cuts to the federal debt

This post was written by Christopher L. Rissetto, Robert Helland and Melissa E. Beras.

As we noted last week, the $900 million cut from the federal budget to avoid default of the nation’s debt obligations is only just the beginning. The Budget Control Act of 2011 (“Act”) guarantees that another $1.2 to $1.5 trillion will be cut from the federal debt over the next ten years (Public Law 112-35). The only question is how these cuts will come. Will the bipartisan congressional debt “Super Committee” meet the tight deadlines mandated in the Act and come to a consensus on a debt reduction package? If they do, how much will the cuts affect Medicare, Social Security and other mandatory spending programs, as well as defense? And will the package include any revenue increases? If the Super Committee does not come to a consensus, then the Act’s “Automatic Trigger” kicks in: spending for both discretionary and mandatory programs, including Medicare, would be cut from 2013 through 2021. The cuts would be 50-50, between defense and non-defense. However, the Medicare cut could not exceed 2% in any given year.

With a daunting task in front of it - and the fallback of the Automatic Trigger - it would be somewhat understandable if the Super Committee was set up to fail. However, Republicans and Democrats have appointed members to the Super Committee who are serious, at least at this point, in bridging the partisan divide in Congress and coming to a consensus on a debt package. The Co-Chairs of the Super Committee are Senator Patty Murray (D-WA) and Rep. Jeb Hensarling (R-TX-5). The remaining members are: Senators Max Baucus (D-MT); John Kerry (D-MA); Jon Kyl (R-AZ); Rob Portman (R-OH); Pat Toomey (R-PA); and Reps. Dave Camp (R-MI-4);.Fred Upton (R-MI-5); James Clyburn (D-SC-6); Chris Van Hollen (D-MD-8); and Xavier Becerra (D-CA-31). We note that these Senators and Representatives have an understanding of the spending issues in the programs at risk for cuts. For example, two of the Members chair congressional committees with jurisdiction over Medicare [Senator Baucus, Chair of the Senate Finance Committee, and Rep. Camp, Chair of the House Ways and Means Committee].

The timetable is tight, though. Under the Act, the Super Committee has until November 23rd to produce a debt reduction package and Congress has until December 23rd to send that package to the President’s desk (the President has until January 15th to sign the bill into law). As we also noted previously, the Act does give the Super Committee, and Congress, some tools to expedite package and avoid delaying measures used by other Members of Congress in the past, such as requiring any debt package to face an up-or-down vote and thus avoid any amendments on the House or Senate floor that could be deal breakers. Moreover, there are other parallel legislative events -- the likely Omnibus Appropriations bill and certain Re-authorization bills -- that may also influence final budget issues. It remains to be seen, however, whether in the end the Super Committee can bridge partisan differences on principles central to each party, such as spending for safety net programs and opposition to any tax increases. In other words, stay tuned….


The Overseas Exemption to the Cost Accounting Standards Eliminated Without Ever Informing Government Contractors of the Correct Interpretation of the Exemption

This post was written by Christopher L. Rissetto and Stephanie E. Giese.

Those of us who have an interest in compliance with the federal Cost Accounting Standard (“CAS”) are not surprised that the CAS Board eliminated the Overseas Exemption effective October 11, 2011. See 76 Fed. Reg. 49365 (Aug. 10, 2011). What may be more surprising than the elimination of the exemption is that the CAS Board is eliminating the exemption that it first promulgated in 1973 without ever offering its interpretation of how the exemption should be applied. So, for contractors who have relied on this exemption or will rely on this exemption for contracts and subcontracts awarded prior to October 11, 2011, we will never know which federal agency’s interpretation of the exemption is correct. The CAS Board’s failure to interpret this exemption introduces some uncertainty for contractors who have relied on the exemption, particularly in the event of a CAS compliance audit.

Federal Agency Interpretations of the Overseas Exemption Differ. Some federal agencies such as the U.S. Agency for International Development (“USAID”) have interpreted the application of the exemption narrowly in acquisition policy guidance such that the vast majority of U.S. companies could not rely on the exemption (if any costs, direct or indirect, are incurred in the U.S. and charged to a USAID contract). Other federal agencies, including the U.S. Department of Defense (“DoD”), have stated in acquisition policy guidance that a U.S. company may rely on the Overseas Exemption if all direct costs incurred in connection with a government contract are incurred overseas.

The CAS Board’s Limited Jurisdiction was the Basis for the First Promulgation of the Overseas Exemption. You may ask why the Overseas Exemption was first promulgated in light of the fact that the federal agencies do not agree on its application. The Overseas Exemption was first promulgated in the Armed Services Procurement Regulation (“ASPR”) in 1973. The original basis for the exemption was that the CAS Board’s jurisdiction was limited to contracts awarded in the U.S., its territories and possessions pursuant to Section 2168 of the Defense Production Act (“DPA”). Thus, by default, contracts and subcontracts executed and performed entirely outside the U.S. were exempt from CAS. The CAS Board ceased to exist under the DPA in 1980, but was reestablished in 1988 under the Office of Federal Procurement Policy (“OFPP”) Act without the overseas limitation on the Board’s jurisdiction. In 1992 and again in 2008, during the time when its jurisdiction included contracts performed overseas, the Board reviewed its rules and chose to retain the Overseas Exemption without offering any further interpretation of the applicability of the exemption.

CAS Compliance May Depend on Your Agency’s Interpretation of the Overseas Exemption. This month the CAS Board again offered no further interpretation of the Overseas Exemption when it eliminated the exemption. So a government contractor may want to consider the federal agency that awarded the contract before relying on the Overseas Exemption to CAS -- while the exemption lasts!

The Satan Sandwich is in the Details: Breaking Down the Budget Control Act of 2011 and the Role of the Joint Select Committee on the Deficit Reduction.

This post was written by Christopher L. RissettoRobert Helland and Melissa E. Beras.

Last week, the House of Representatives and the Senate each voted to pass the Budget Control Act of 2011 (“Act”) raising the nation’s debt limit and averting the real threat of a default on our debt obligations. President Barack Obama promptly signed it into law the same day, narrowly averting default (Public Law 112-35). However, a compromise called by some as a “Satan Sandwich” still has major ramifications on federal spending priorities for months to come.

Some pain now, more pain later. The Act immediately gave President Obama the authority to raise the debt ceiling by $400 billion. A second $500 billion adjustment in the debt ceiling, which is subject to a congressional vote of disapproval that can be vetoed by President Obama, will likely come this September 2011. These first two increases, totaling $900 billion, are offset by $917 billion in 10-year savings in non-defense federal discretionary spending – i.e. funding not mandated by federal law, such as through the Medicare or Social Security programs. This will be achieved by cutting annual appropriations down to $1.043 trillion in 2012 and then slowing the rate of future growth in following fiscal years to a fraction of inflation.

The Act also mandates another $1.2 trillion to $1.5 trillion in deficit reduction. This will happen one of two ways: either through the recommendations of a Joint Committee of House and Senate members or by automatic across-the-board cuts that would be split equally between mandatory programs, including Medicare and Social Security, and defense.

Why some are calling this a “Super Committee”. No later than November 23, 2011, the Joint Committee is required to vote on a report that contains a detailed statement of its findings, conclusions, and recommendations for what programs should be cut. There are a number of provisions in place to give the Joint Committee additional powers to come to a decision on cuts and get that enacted into law. For example, they have a freedom to include matters not ordinarily included in similar legislation, such as policy issues that do not impact the federal debt, for example changes in the recently heath care reform or Dodd-Frank finacial regulatory reform laws. Also, any legislation reported would not face amendments and only require a simple majority in each house of Congress for final passage. For these reasons, the Joint Committee is also being known as the “Super Committee”.

The “Automatic Trigger”. A lesser of two evils? Failure by the Joint Committee to hit at least $1.2 trillion in savings would trigger automatic cuts in both discretionary and mandatory programs, including Medicare, from 2013 through 2021. The cuts would be 50-50, between defense and non-defense. However, the Medicare cut could not exceed 2% in any given year. So for all those who rely on Medicare - from the pharmaceutical industry, to hospitals, to nursing homes, to doctors - it would likely make sense to hope the Joint Committee does not come to a consensus on cuts. Given the lobbying expected by the Defense Industry, it is highly possible that the Joint Committee could make non-defense programs suffer the greater amount of cuts.

This also guarantees that lobbying activity of Congress will be at a fever pitch for the next six months.

Anchors Aweigh! U.S. Navy to Sail on Biofuels

This post was written by Christoper L. Rissetto, Philip G. Lookadoo and Marco A. DeSousa.

In another move demonstrating the Defense Department’s commitment to renewable energy, the U.S. Navy recently announced that it intends to make its largest purchase of biofuels ever for a test run in 2012 of its “Great Green Fleet.” For several years the Navy, as well as other military branches, has been testing biofuels as an alternative to traditional fossil fuels. The Navy uses biofuels to power surface ships and aircraft.

The Defense Department is a major player in the renewable energy space, especially with respect to biofuels. Because of the Defense Department’s incredibly large appetite for energy, the Navy and other military branches have become market makers in the immature biofuels markets. Such large purchases provide much needed revenue to biofuel producers. The Navy has been as emphatic as any branch by setting a goal of procuring 50% of its energy from renewable sources by 2020.

The primary objective of the Navy’s progression towards renewable energy is national security. The security benefits of sourcing biofuels from domestic and diverse, non-domestic producers are obvious, but the profound effect on the economics of these developing markets is also a vested interest, and this is encouraging for renewable energy companies and for the broader goal of combating climate change. The large demand created by the Navy and other military branches for the physical delivery of biofuels is only one aspect of the influence these branches have on the biofuel markets. In addition to purchasing fuel from producers, the Navy has contracted with cutting-edge biotech companies in the R&D stage of production. It is clear that all companies in the biofuels space need to keep abreast of the Defense Department's biofuels development initiatives.

When so much talk about the federal government involves the perception, whether real or fictional, of its encroachment on the private sector, the Defense Department’s significant influence in the biofuels markets is a net positive for all Americans.


Congress makes an effort to address the growing transportation infrastructure backlog

This post was written by Christopher L. Rissetto and Robert Helland.

A flurry of legislative activity in the House of Representatives and Senate on measures affecting transportation infrastructure projects may signal movement on a multi-year spending in the 112th Congress. The need is clearly there: the American Society of Civil Engineers ("ASCE") in its 2009 "Report Card for America's Infrastructure", 33% of America's major roads were listed as being in poor or mediocre condition and 36% of the nation's major urban highways were congested. The ASCE gave our roads and bridges a grade of "D-". Our transit systems face a similar situation and only got a slightly better grade of "D". As any commuter will tell you, this situation has not improved.

The question is, how does the federal government pay to 1) maintain and 2) improve the nation's road and rail infrastructure with decreasing gas revenues flowing into the Highway Trust Fund (which is the main mechanism on the federal level to pay for such projects)? The answer may lie with fewer direct outlays of federal funds for transportation --compared to prior years-- and an increased reliance instead on the leveraging of funds, through the greater use of existing federal financing programs, the creation and capitalization of state "infrastructure banks" to provide financing for projects, and policies that will attract private sector investment i.e. through public-private partnerships. That's the emphasis in a transportation funding proposal released this week by the House Transportation and Infrastructure ("T&I") Committee Chair, John L. Mica (R-FL-7). The Public Policy and Infrastructure Practice takes a look at what is being proposed and how likely any measure will be enacted into law, given the nation's fiscal situation.

Leveraging is a key component in the SAFETEA-LU reauthorization proposals from the House Transportation and Infrastructure Committee.
At issue is the re-authorization of the multi-year transportation law known as "SAFETEA-LU" which provides funds for road and rail programs and projects. The law should have been re-authorized before its September 30, 2009 expiration, however, decreasing revenues into the Highway Trust Fund, which is funded primarily by the tax on motor fuels, has resulted in an impasse on any decision for new law. Instead the existing law has been subject to a series of temporary extensions, the latest expiring on September 30th of this year. A sign that this could change occurred this week when House T&I Chairman Mica introduced a six year, $230 billion SAFETEA-LU re-authorization proposal. This is over $50 billion less than the $286.5 billion included in SAFETEA-LU when it was signed into law in 2005. (Public Law-109-59) In a recent press conference and PowerPoint presentation, Chairman Mica detailed three tools to help stretch this lower dollar figure further: 1) He authorizes $6 billion to fund the Transportation Infrastructure Finance and Innovation Act ("TIFEA") program. TIFEA provides low interest loans, loan guarantees and lines of credit "to finance surface transportation projects of national and regional significance". According to the Chairman, this would fund at least $120 billion in transportation projects. 2) Chairman Mica would authorize and capitalize “State Infrastructure Banks” to provide loans and loan guarantees for state and local transportation projects. States would be able to dedicate 15% of the formula funds received under SAFETEA-LU to help do this. 3) Chairman Mica would encourage private sector investment in transportation. He would do so by increasing the use of financing programs, such as TIFEA, which fund projects with private-sector funding. He would also encourage public-private partnerships for transportation projects by providing greater credit towards a “local share” of a project’s cost to those that utilize such partnerships. In addition, he would remove barriers that he says prevents the private sector from offering public transportation services.

We note that Congressman Mica’s Senate counterpart, Senate Environment and Public Works Chair Barbara Boxer (D-CA) proposed her own version of a SAFETEA-LU re-authorization bill and has criticized Congressman Mica’s bill as inadequate for the nation’s transportation needs. Her bill would provide a greater amount of annual funding but over less time ($109 billion over two years). Whether both the House and Senate can agree upon a figure will depend on whether the pent-up demand by state and local governments and the business community for a steady stream of transportation funds will overcome any concerns about the cost to the federal purse. However, it is probable if not definite that any measure that reaches the President’s desk will include a financing mechanism for transportation projects

Regulatory Round Up 6.24.11


Elected officials beware: Your vote does not equal free speech

This post was written by Chris Rissetto and Bob Helland.

Across the country, federal, state and local governments have enacted - and strengthened - conflict of interest restrictions on how their elected officials vote as a way to prevent those officials from voting in their own self-interest To those who argue that such a restriction on voting violates his or her First Amendment Right to free speech, the Supreme Court has unanimously said no. In the case of Nevada Commission on Ethics v. Carrigan, 563 U.S. ___(2011), the Court has decided that the First Amendment Rights of a city council member from Sparks, Nevada were not violated when he was censured by the state Commission on Ethics for a vote on a project connected to his campaign manager. This decision continues the trend going on the local, state and federal level to hold government more accountable and serves as a warning for those who serve in government as well as those seeking to do business with it.

Michael Carrigan, a member of the Sparks City Council, was found by the Nevada Commission on Ethics to have violated the Nevada's Ethics in Government Law -- which broadly defines conflicts of interest -- when he voted to approve an application for a hotel/casino project in Sparks that his friend and long-time campaign manager worked for as a paid consultant. The Nevada Supreme Court decided that his First Amendment rights had been violated.

When it comes to the First Amendment, a vote by an elected official is not the same as a vote by a private citizen. In reversing the decision by the Nevada Supreme Court, the Court took care to distinguish the fact that the elected official was acting in his official capacity, in this case by voting. This is not protected speech when it comes to the First Amendment, wrote Justice Scalia, speaking for the majority: "A legislator's vote is the commitment of his apportioned share of the legislature's power to the passage or defeat of a particular proposal. The legislative power thus committed is not personal to the legislator but belongs to the people; the legislator has no personal right to it" (slip opinion at Page 8). Justice Scalia also strongly rejected the argument that a vote represents some form of symbolic speech that merits protection under the First Amendment, questioning how a legislator would indicate, or whether he would even wish to indicate, the symbolic meaning behind his vote.

What's next? The Court's decision upholding Nevada's Ethics in Government Law as constitutional supports the many conflicts of interests restrictions on elected officials that are in place across the country. However, an opening may remain to challenge part of Nevada's law: that which bans activity affected by an elected officials "commitment in a private capacity to the interests of others" Nev. Rev. Stat. Section 281A.420. Justice Kennedy, in his concurring opinion, noted that this might be too broad a category and could encompass an elected official's relationship with supporters, many of who might reasonably expect the official to vote a certain way on a matter. Kennedy writes that "the possibility that Carrigan was censured because he was thought to be beholden to a person who helped him win an election raises constitutional concerns of the first magnitude" (slip opinion at Page 4). This question was not brought up before the Court however and therefore not considered in its decision. But governments should consider Justice Kennedy's opinion as a warning when writing and enforcing their conflicts of interest restrictions. Defining a conflict of interest as broadly as Nevada may have future constitutional concerns.

European Commission announces new initiatives to tackle corruption

This post was written by George Hoare.

On 6 June 2011, the European Commission (EC) outlined measures to tackle the problem of corruption within the European Union (EU). According to figures quoted in the press release, four out of five EU citizens regard corruption as a major problem in their Member State, with corruption estimated to cost the EU economy €120 billion per year.

The most significant of the new initiatives is the establishment of the EU Anti-Corruption Report (the Report). The Report will be issued by the EC every two years, starting in 2013, and is intended to give a clear picture of anti-corruption efforts and achievements within the EU, as well as pointing out failures and vulnerabilities across the 27 Member States. It is hoped that the Report will stimulate peer learning and exchange of best practices between Member States.

Further initiatives to tackle corruption are expected over the coming years. These include: proposals for modernising rules for confiscating criminal assets; an action plan for how to improve the gathering of crime statistics; and a strategy to improve criminal financial investigations in Member States. In parallel, the EU will put greater emphasis on anti-corruption considerations in its relevant policies. These initiatives are part of a wider agenda to protect Europe’s licit economy, as set out in the EU Internal Security in Action presented by the EC in November 2010.

According to Cecilia Malmström, European Commissioner for Home Affairs, implementation of anti-corruption legislation among Member States is “very uneven”. She considers that there is “not enough determination amongst politicians and decision-makers” to fight corruption and the Report is designed to generate the political will to tackle the problems associated with corruption.

Consider Grant Remedies Before Repaying Uncle Sam

This post was written by Christoper L. Rissetto and Robert Helland

At times, Federal grantees reconsider the wisdom of applying for, and spending, Federal grant dollars. Unfortunately, the result of such reconsideration is a demand by the Federal grantor to repay the grant funds already spent.

A grantee facing this predictable Federal decisionmaking has a number of options before pulling out the peoples’ checkbook (or running to court). A grantee, particularly a State, may have a number of ways to significantly pare down any announced “debt” of the United States.

  • Ask for, and conditionally accept, any agency “offer” and use it as a base for negotiations and claims.
  • Make all good faith claims possible under the subject program (e.g., whether housing, environmental, transportation, and the like). These can act like sponges to offset some of the federal debt repayment. A State will have a broader range of options here, versus a city, county, or special district.
  • Ditto on making claims where Federal funding might presently be absent, but the costs would have been funded if monies were available. Make “dry grant” requests, where the eligible, but unfunded, amounts might also act to offset federal claims.
  • Inventory every conceivable grant claim, in every federally-sponsored program, that the grantee might make – then make them. By this point, the message is clear, if a grantee is acting as a “debtor” then all steps must be taken to simply reduce the potential debt.
  • Treat the “termination”, if applicable, as a government-directed one (i.e., as a de facto termination for convenience). If so, then the grantee and Federal government must negotiate the terms of the termination.
  • Consider claiming that Federal repayment demands are inconsistent with the Debt Collection Act, in that it makes the political entity non-viable economically, or even bankrupt. A grantee can always argue, with sufficient proofs, that it simply cannot repay a Federal debt and can seek relief accordingly. Further, if the grantee is a State, it is important to note that States cannot file under bankruptcy law, so it should be placed into bankruptcy, involuntarily, by Federal collection action.
  • Alternatively, offer a very limited repayment amount, which would form the basis for future government negotiations.
  • Further, a grantee might offer an “in-kind” contribution, at least for part of the repayment amount.
  • Seek to have included within an appropriations bill direction to the affected Federal agency that its final decision on the dispute for grant XXX will be that made by the grantee. After all, this is Congress’ money, and it can decide to direct a Federal grantor’s decision to be that of its grantee.

Regulatory Round Up 5.23.11

The debate on raising the debt limit: We've seen this movie before.

This post was written by Christoper L. Rissetto and Robert Helland.

In April, the President and Congressional Republicans agreed on a deal to cut $38.5 billion in discretionary spending from the federal budget for the remainder of Fiscal Year ("FY") 2011, averting the threat of a government shutdown. As we have noted however, that decision was "easy" when compared with the more difficult decisions Congress and the Obama Administration face on revenue and spending priorities for FY 2012 and beyond. One event triggering these decisions is the need for the federal government to raise its debt limit. This week, Treasury Secretary Geithner notified Congress that he was taking "extraordinary measures" to fund federal operations as the United States has hit the $14.3 trillion debt ceiling and could not borrow additional funds. To avoid the U.S. defaulting on its obligations, Congress will have to vote to raise the debt ceiling, and soon. However before there is a vote to do so, Speaker of the House John Boehner (R-OH-8) and other Republicans have made it clear that they want an agreement on significant cuts in spending, while Senate Democrats and the Obama Administration want revenue increases on the table as well. And even if all sides reach an agreement, another agreement will need to be reached to fund the federal government for FY 12, set to begin on October 1st. Lurking behind all of these decisions is the threat of a government shutdown - or worse - if an agreement is not reached.

Living on borrowed time. The Federal Government has already hit the $14.3 trillion debt ceiling, as Secretary Geithner has noted in his letter to Congress. Without an increase, the United States can no longer borrow funds needed for the federal government's operations and in addition runs the risk of defaulting on its existing debt obligations. In his letter to Congressional leaders, Geithner indicates that Treasury has secured "additional headroom" by suspending investments in federal retirement funds. However, this only will buy a limited amount of time: by August 2nd "the borrowing authority of the United States will be exhausted". Before August 2nd, Congress must vote to raise the debt limit - something it has done repeatedly over the years. However, the decision to raise the debt limit has been tied to efforts to reduce the amount that the federal government borrows. As noted above, House Speaker Boehner has made clear the position of the House Republican majority that any reductions in borrowing must come from spending cuts. The problem is to get the spending cuts needed to make significant reductions in the debt, House Republicans could not simply focus on discretionary spending programs, as was done in the April budget deal. This only constitutes about 1/3 of the federal budget. Now it must also cut spending for mandatory programs, including Social Security and Medicare, which make up the remaining two-thirds. House Republicans, led by House Budget Chairman Paul Ryan (R-WI-1), would do this in part by cutting spending to Medicare. On the other side, a number of Democrats, including Vice President Biden and Senate Budget Committee Chairman Kent Conrad (D-ND), are leading negotiations that consider other debt reduction measures, including tax increases and the end of certain tax breaks. While the details of a final debt reduction package are not yet known, it is expected that it will include both spending cuts and revenue increases. And expect to see Social Security and Medicare somewhere in the mix too. The need to address the spending for both programs was reinforced this week when Treasury announced that the trust funds for each program will be exhausted a bit earlier than anticipated. The Medicare Trust Fund will be exhausted by 2024 and the Social Security Trust Fund will be exhausted by 2036.

How this plays out in spending decisions for FY 12. The House of Representatives is moving forward on appropriations for the 12 annual spending bills that will fund the federal government for FY 12, with discretionary spending levels of $1.019 trillion among the 12 bills. This represents a cut of $30.4 billion for discretionary spending in FY 11. However, the Senate has never agreed to these numbers. Further, Democrats argue that the $1 trillion number for FY 12, which is $30.4 billion below FY 11 levels, is too low. So now all eyes are on the debt negotiations, to see if greater numbers for discretionary spending for FY 12, and beyond, are agreed to.

Joint congressional hearing this Thursday on Obama Administration proposal disclosing political contributions by government contractors.

This post was written by Christopher L. Rissetto and Robert Helland.

The Chairs of the House Oversight and Government Reform and Small Business Committees have announced a joint hearing of their respective committees on a sweeping proposal by the Obama Administration requiring the disclosure of political contributions and expenditures by those bidding on government contracts. The Public Policy and Infrastructure Group has been monitoring this draft executive order since it was first proposed and noted that it would have a significant impact on the contract community. It would require the disclosure of (a) all contributions or expenditures to or on behalf of federal candidates, parties or party committees made by the bidding entity, its directors or officers, or any affiliates or subsidiaries within its control; and (b) any contributions made to third party entities with the intention or reasonable expectation that parties would use those contributions to make independent expenditure or electioneering communications.

The most recent development is the scheduling of the joint congressional hearing on the proposal, which will happen on 1:30 Thursday, May 12th in the Oversight and Governmental Reform Hearing Room, 2154 Rayburn House Office Building. The House Oversight and Governmental Reform Committee is a powerful one with jurisdiction over any issue it wishes to examine. As we have previously noted, its Chairman, Darrell Issa (R-CA-49) has indicated his intent to move forward on an aggressive plan of oversight of the Obama Administration. Both Chairman Issa and Small Business Chairman Sam Graves (R-MO-6) have requested that White House Budget Director Jack Lew testify at this hearing, but he has declined. Both Chairmen have indicated their interest to subpoena the Budget Director, indicating the tension underlying this proposed Executive Order. A list of other witnesses has been made available and includes representatives of government contractors and trade associations as well as scholars.

This is expected to be part of an ongoing effort by Congress to block or otherwise limit the implementation of this proposed order.

Regulatory Round Up 5.9.11


Are additional restrictions on political spending by government contractors coming from the Obama Administration?

This post was written by Christoper L. Rissetto and Robert Helland.

The Internet has been ablaze over the past 24 hours with reports that the Obama Administration is considering requiring "all entities submitting offers for federal contracts to disclose certain political contributions and expenditures that they have made within two years prior to the submission of their offer". This was first disclosed by Hans A. von Spakovsky, a former Federal Election Commissioner and scholar with the Heritage Foundation. The Public Policy and Infrastructure and Government Contracts Groups offer this analysis of the Administration’s proposal, as it is known so far, and will monitor efforts to implement it as well.

The proposed order requires the following to be disclosed:

(a) All contributions or expenditures to or on behalf of federal candidates, parties or party committees made by the bidding entity, its directors or officers, or any affiliates or subsidiaries within its control; and
(b) Any contributions made to third party entities with the intention or reasonable expectation that parties would use those contributions to make independent expenditure or electioneering communications.

The Impact of these Rules on the Contracting Community Will be Significant. If implemented, these disclosure requirements would have a broad impact both in terms of what needs to be disclosed and who needs to disclose it They would apply, for example, to any entity seeking to do business with the federal government. So those seeking to contract with the federal government would have to put a compliance system in place – as part of putting together its bid – in order to keep track of the contributions and expenditures made. Also, the proposed disclosure requirements would reach far into the bidding entity, to include affiliates or subsidiaries under its control. For an entity with many subsidies, this would not only mean creating an effective compliance system but enabling the coordination within that system among many pieces and players, in order for effective disclosure. Finally, they would apply not only to political contributions to candidates and political parties but also to contributions made to a third party that spends money for advertisements advocating the election or defeat of a candidate for federal office. So, for example, if an officer of a bidding entity also belongs to an organization that runs ads calling for the defeat of a candidate, then he or she must disclose dues any other payments made to that organization, in the context of the bidding entity seeking the federal contract. That goes beyond any requirement in place today and in real terms means that those entities which run these advertisements could see the disclosure of those behind them.

Many legal issues are likely raised by an Executive Order that would be issued with this content. Among these issues are: (1) constitutional, third party, and other statutory rights that might be disturbed by compliance with the requirements of the Executive Order; (2) whether such an Executive Order exceeds the President's authority; and, (3) potential third party liability that might be incurred by implementation activities of covered entities (e.g., employment disputes), among others.

This proposed executive order is clearly a response to the Supreme Court’s decision in Citizens United v. FEC, which reverses decades of statutory and case law that prohibit corporations from using their general treasuries to fund independent political advertising supporting or opposing candidates for local, state or federal office.  And those on the right clearly consider it to be drafted in favor of organizations favoring the Democratic Party. van Spakovsky, for example, notes “federal employee unions that negotiate contracts for their members worth many times the value of some government contracts are not affected by this order. Neither are the recipients of hundreds of millions of dollars of federal grants”. We would note that this is a proposal only and the final details of the Executive Order are still not in place.

At the 11th hour, an agreement was reached on the US Fiscal Year 2011 budget. That was the "easy" part.

This post was written by Christoper L. Rissetto and Robert Helland.

Late Friday evening, with only minutes remaining before a partial shutdown of the federal government, the White House, Senate Democrats and House Republicans came to an agreement on spending and policy decisions necessary to fund the federal government for the remaining six months of Fiscal Year 2011. In the end, $38.5 billion was cut from the discretionary side of the budget, i.e. spending for programs whose spending levels are not mandated by federal law such as Social Security and Medicare. While more detail will be made available in the next days and weeks about where the budget knife will fall, we know that programs at the Departments of Labor, Education and Health and Human services will be cut by $13 billion. $18 billion will come from cuts in programs considered to be "unnecessary" by the Department of Defense. The remainder will be spread across agencies ranging from State to Housing and Urban Development. In addition, some, but not all of the policy riders sought by Republicans were included, such as restrictions on the District of Columbia spending its own funds to provide abortions and requirements and the reauthorization of a program to continue a school voucher program in the District.

The compromise agreement took a lot of effort, however the work on this agreement will seem slight in comparison to the decisions needed to be made 1) on the next federal budget, for Fiscal Year 2012; and 2) on the upcoming increase needed on the federal debt ceiling. A more grueling battle in both areas is expected, with cuts in both discretionary and mandatory spending to be under consideration. We will see more detail on the President's plan when the Obama Administration makes its own budget request of Congress this week, in response to a plan already put out by House Republicans that will cut $5 trillion over ten years.

Companies would be advised to at least monitor the budget activities, and to lobby for needed clarifications and amendment. Significant budget policies, possibly including the structuring of the tax code and other key program directions, are certain to be debated and revised.


Regulatory Round Up 3.24.11

Regulatory Round Up 3.11.11

Regulatory Roundup 3.4.11


Ending Collective Bargaining Rights of Public Employees. Is this a Case of Cutting off your Nose to Spite your Face?

This post was written by Christopher L. Rissetto and Robert Helland.

Attention has been fixated on efforts in Wisconsin and other states as governors seek concessions from public employee unions in efforts to balance their budgets. Governor Scott Walker (R) of Wisconsin has gone the furthest, so far, by seeking to eliminate the collective bargaining rights of public employee union, prompting Democrats in the State Senate to flee the state to avoid that legislative body from reaching a voting quorum on the issue. If Governor Walker should eventually be successful, however, Wisconsin faces a potential grant issue it may not have initially anticipated: the potential loss of transit assistance it receives from the federal government. Federal law requires governing bodies receiving federal transit assistance to keep all the collective bargaining rights it had in place at the time that assistance began.

The attached client alert discusses the potential grant issue, who might be affected, as well as ambiguities and a possible fix.

Federal Filing Requirements for Logistics Companies Eased

This post was written by Matthew J. Thomas.

The US Federal Maritime Commission (FMC), which regulates US international ocean shipping services, has made life easier for thousands of logistics companies and their import/export customers.

The FMC regulates a broad range of “ocean transportation intermediaries,” the logistics providers and forwarders who connect importers and exporters with global shipping lines. Many of these (called “non-vessel-operating common carriers or “NVOCCs” ) act as resellers of ocean transportation services. NVOCCs buy space in bulk from vessel operators, then resell it, often bundled with additional services, to manufacturers and retailers.

On February 16th the FMC announced a plan to waive longstanding requirements that licensed NVOCCs publish their pricing in public freight tariffs and file all individual customer contracts with the FMC. Cutting these anachronistic filing rules will help over 3300 companies, according to the FMC, and should help encourage more individualized negotiations for international transportation solutions. The changes should take effect later this spring, but logistics companies still will need to comply with FMC licensing, bonding and recordkeeping rules.

The FMC cited the White House’s latest mandate for agencies to review rules and reduce burdens, set out in President Obama’s January 18, 2011 Executive Order 13563, and signaled a willingness to consider further cuts.

Hopefully the FMC’s zeal for streamlining will be contagious, given the rigorous regulatory landscape for logistics providers. Companies providing integrated supply chain solutions must navigate an impressive array of agencies, including the FMC, the Department of Transportation (air freight forwarding), Federal Motor Carrier Safety Administration (motor carrier forwarding and broking), Transportation Security Administration (facility security) and Customs and Border Protection (carrier bonding and manifest filing). With additional requirements and regulators for dual-use goods, arms, food, drugs, and hazardous materials, compliance planning quickly becomes an exceptionally sophisticated undertaking.  

Regulatory Round Up 2.3.11

With a title like "Tactical Secrets" I was expecting a insiders look into fly fishing for Steelhead trout . But then I realized I was reading the New York Times. Instead, this piece addresses the government's assertion of the state-secrets privilege in General Dynamics Corp v. US.

Déjà vu all over again. Nick Silver compares the political landscape that President Clinton faced with the current congressional make up now facing President Obama.

When blogs reference other blogs, we here in the Round Up office get excited. Howard Sklar at Open Air Blog explains why he disagrees with the FCPA Professor and Alexandra Wrange (of TRACE) over the impact of the UK Bribery Act.

Sudan Watch: With referendum results showing overwhelming support for secession, Khartoum is calling for an end to the US embargo. In news that should surprise absolutely no one, the US has decided to wait and see.

The National Institute of Standards and Technology has issued new guidelines for cloud computing. If "safeguarding data in the public cloud" is something you are in to, or have no idea what it means, you may want to read this.

The Spending Debate in Washington: Its déjà vu all over again

The post was written by Robert Helland.

With the Republican Party in control of the House of Representatives this year, attention has focused on where the areas of conflict will be between the House, the Democratic-controlled Senate, and the White House. While a lot of attention has been focused on efforts to repeal health care and the upcoming hearings promised by new committee chairmen, including House Oversight and Government Reform Chairman Darrell Issa (R-CA-49), a bigger battle looms: Congress and the President must agree on a number of important spending decisions, from funding the government for the remainder of the current fiscal year to raising the national debt. Despite the recent calls for a more civil debate, the strong possibility exists that we could easily see a rerun of the budget stalemate that occurred in 1995 between then-President Clinton and the Republican-controlled Congress. This stalemate led not to one but two shutdowns of the federal government. As Yogi Berra once said: "Its déjà vu all over again".

Here are three budget tripwires to look for in the upcoming weeks, any one of which could lead to a budget standoff:

1. Talk about taking you time paying your bills: Congress and the President have still not agreed on a budget for the current fiscal year, which began over three months ago. Fiscal Year 2011 ("FY 11") began on October 1, 2010 and Congress and the President have still not come to agreement on the 12 spending bills needed to fund the operations of the federal government. Instead, they have chosen to pass a continuing resolution ("CR"), which keeps spending at FY 11 levels and puts off a decision on a final budget till March 4, 2011. Expect to see Republicans push for significant cuts in the FY 11 budget as the March 4th deadline approaches.

2. Oh, and about that $14 trillion we owe…well, we need more. One nice thing about being a debtor when you are the federal government: you can always give yourself the authority to borrow more money. And the government will need it too: at some point in March, the federal government will hit the current $14 trillion debt ceiling and will need to either raise it or run out of money and shut down.

3. Then there's FY 2012. And before the ink dries on any agreement on FY 11 spending or raising the debt limit, the decision making process on FY 12 begins, with the same differences on spending between the parties. President Obama laid down a marker down this week in his State of the Union address when he called for a targeted domestic spending freeze on all non-security domestic spending which would reduce domestic spending by $400 billion over ten years. This is in advance of the Obama Administration’s FY 12 budget proposal to Congress, which is anticipated in February. However, the gap between the President’s budget cutting proposal and those put forth by Republicans suggests that an agreement with the Republicans won't be easy to reach by the time a FY 12 budget needs to be in place, by October 1, 2011.

Both Republicans and Democrats are aware of the high risks for both parties – and the country - should there be a budget standoff leading to a partial or total government shutdown. The recent announcement from the Congressional Budget Office that the deficit for FY 11 will rise to a record $1.5 trillion may help parties come to an agreement on spending. But given the gulf that currently exists between Democrats and Republicans, a shutdown cannot be ruled out.

Regulatory Round Up 1.24.11


Regulatory Round Up 1.13.11

Regulatory Round Up 1.7.11

Regulatory Round Up 12.16.10

Around this time of year many people look forward to the ringing of bells. Bryan Rahija wants your help in ensuring that we have year-round blowing of the whistles.

If the estate tax was called the death tax, would we all try to live a little healthier? (It’s the holidays – I'll make and break my resolutions in a few weeks). Regardless of its title, the tax is on the table. So what should congress do about it?

As a child, my parents coerced my siblings and I to get along through the promise of presents from Santa. Turns out FCPA violators who play nice with the DOJ may be able to secure a present of their own: a Non-Prosecution Agreement.

Holiday takeaways: good = presents; bad = coal; Microsoft engineer who attempts to export ITAR controlled goods to China  = criminal complaint.

Regulatory Round Up 12.02.10

The Power of the Subpoena: The House Oversight and Government Reform Committee and its next Chairman, Representative Darryl Issa

This post was written by Christopher L. Rissetto and Robert Helland.

What can the House Oversight and Government Reform Committee investigate? Pretty much anything it wants. With Republicans taking over the majority in the House of Representatives, the incoming Chair of the House Oversight and Government Reform Committee, Representative Darrell Issa (R-CA-49), is set to move forward on an aggressive plan of oversight of the Executive Branch. This is of importance to interested companies affected by government regulation, but especially those affected by the implementation of the recently passed health care and financial reform statutes; our nation's food safety system; the economic stimulus; and efforts by the Environmental Protection Agency to address greenhouse gas regulation and related environmental issues – areas where Representative Issa and other Republicans have been most critical. The Public Policy & Infrastructure Practice expects to see a number of Committee hearings in these, and other areas, throughout the 112th Congress. We know that Committee and the expected targets in the White House and at federal agencies are all "lawyering up."

To view the full client alert click here.

Do the Midterm Election Results mean a Recipe for Gridlock?

This post was written by Christopher L. Rissetto and Robert Helland.

The midterm elections are (finally) over. With the Republicans taking over the House of Representatives next year and the Democrats keeping control of the Senate, albeit by a smaller margin, the question is what, if anything, will get accomplished in the 112th Congress? Overall, the chance for passage of major legislative initiatives in areas such as energy or immigration are dramatically reduced. However, those elected to Congress, both Republican and Democrat, have promised to deal with the nation's struggling economy, including the too-high unemployment rate. Also, there are a number of legislative matters which must be addressed next year, including the passage of legislation funding the operations of the federal government as well as legislation needed to raise the national debt. All of this occurs while the White House takes steps to implement the recently-passed health care and financial reform laws and the Republicans in the House of Representatives use their new majority to watch those steps closely.

All of this means all lot of activity next year, which has a lot of potential for progress, or mischief, depending on your point of view. Here are some things we expect to see in the 112th Congress:

  1. The Obama Administration is moving forward with implementing the health care and financial regulatory reform laws. Despite the greater number of Republicans in Congress, repeal of either law is unlikely.
  2. However, expect greater oversight and a slew of subpoenas headed to the White House.
  3. "Follow the money". We expect must-pass spending bills to be a battleground over implementation of health care and financial reform.
  4. Job creation; Tax credits; and Deficit reduction meets the debt limit.

Tell us in the comments what you expect out of the next Congress … and whether gridlock will prevent anything from getting done. 

Regulatory Round Up 11.04.10

I bet you think pretty highly of yourself. I know I do … come on, I’m a lawyer! (Please insert stereotypical lawyer joke here – put a good one in the comments if you dare). From time to time, I’m “gently” reminded that not all of my accomplishments are oh-so noteworthy. As my brother used to say after I would regale him with some of my more humdrum endeavors: “what do you want, a cookie?” It looks like I’m not the one in search of a cookie.

As the great state of Wisconsin bids farewell to Russ Feingold, the rest of us begin to say goodbye to the legislation he is most known for.

When I think of auditors, the first thing I think of (after the Grim Reaper) is efficiency. So why then is the Defense Contract Audit Agency amending its procedures in a way that “could expose the government to massive overcharges by prime contractors?”

Interested in potentially saving millions of dollars? Yep, I thought so. Now lets play: Follow the Blogosphere Link Machine. This post is my reference to the FCPA Blog’s reference to an article written by Andrew Weissmann and Alixandra Smith discussing the potential for substantive FCPA revision.

Regulatory Round Up 10.28.10

After the roaring success of the first Round-up (remember when I gave it the cool nickname) we are back for round two. Here is a quick jog around the regulated legal world.

  • Have you ever known a professor who didn't love golf? I didn't think so. Have you ever been able to get a lawyer to stop talking about the law? Don't lie to me, its rude. It was going to happen sooner or later, but I'm hoping this one sticks around -- ladies and gentlemen, for your tee time banter: The FCPA Mulligan Rule.
  • I hope you got all of your "Congress never does anything" jokes out of your system. These Lame Ducks could cost you a fortune.
  • 10 years ago the thought of having two employers would have meant that I had: 1) two small paychecks, 2) a couple of lousy jobs, and 3) at least one terrible middle manager to report to. I'd much rather be a federal contractor in this day and age, where having joint employers means there are more people to sue.
  • If you sit real still, watch closely, and are willing to have less fun than bird watching, you can witness the birth of the proxy advisor industry.

How lame will it be? Congress will return on November 15th for a lame duck session.

This post was written by Christopher L. Rissetto and Robert Helland.

In Washington, all attention right now is on the rapidly approaching midterm congressional elections and the efforts by Democrats to retain their majorities in both houses of Congress. However, regardless of whether Democrats lose control of the House of Representatives or Senate, members of Congress are expected to return to Washington on November 15th to address unfinished business in a lame duck session of Congress. And there is a lot of unfinished business: Congress still must complete work on a budget for the fiscal year 2011, which began on October 1st. In addition, Democratic leaders have promised to address expiring tax cuts that were enacted during the Bush Administration as well as ratification of a strategic arms control treaty with Russia. And if this wasn't enough, Senate Majority Leader Reid (D-NV) has also promised votes on legislation that (1) regulates food safety; (2) provides tax rebates for those using natural gas and electric vehicles; and (3) addresses wage discrimination.

But wait, as the commercial goes, there's more. Pressure remains in Congress to pass measures that would address certain segments of the economy. This runs from extending tax breaks benefitting various industries, addressing Medicare reimbursement rates for doctors, and providing a one-time payment of $250 to Social Security recipients. It is not clear how many of all these measures will make it through Congress before it adjourns at the end of the year. Given the level of partisanship that we have seen in recent months and through the campaign, there is not a lot of cooperation in place on many bills. However, we do see final action likely on legislation affecting budget and economic matters, such as a multi-bill "Omnibus" bill that funds government operations for the remainder of Fiscal Year 2011 (as well as individual projects requested by Members of Congress) and a tax bill that provides assistance to individuals and businesses. More importantly, we see the lame duck as a place where Congress will "set the table" for the efforts it will take in 2011. The Public Policy & Infrastructure Group remains available to advise clients how to develop a legislative strategy for the lame duck as well as the 112th Congress that will begin in January.

Regulatory Round-up

This post was written by Michael A. Grant.

Hello good-looking regulatory attorneys. Welcome to the first installment of the Regulatory Round-up (catchy, I know). If you are reading this post, odds are someone in an office larger than yours is wondering why you aren't working -- but I'm glad you stopped by. The goal of this weekly installment will be to connect you to stories from around the blogosphere that impact those of us practicing in regulated industries. While the primary focus of the Round-up (look, I already gave it a trendy nickname) will be the 7 topics to the left, I'll be sure to mix in other stories that catch the eye. Here's hoping you see something new, have a laugh, or at least get some legitimate "professional reading" time.


Got Grants? Got Subgrantees? Soon You May Have to Report Them.

This post was written by Lorraine M. Campos and Joelle E.K. Laszlo.

Federal grant awardees are about to join contractors in the transparent government revolution. Beginning in November, awardees of prime grants valued at $25,000 or more may be required to report certain executive compensation information about themselves and their subgrantees. The new reporting requirements, established under the Federal Funding Accountability and Transparency Act (“FFATA”), were greeted with open hostility at a recent Office of Management and Budget (“OMB”) Town Hall meeting. Not enough hostility to prevent them from taking effect, however, so prospective grant recipients should take note.

The new grantee reporting requirements are similar to those placed on contractors by the FFATA, about which we reported in August. Unlike the contractor reporting requirements, however, the grantee requirements will not be “phased in” over time. Rather, any new grant of $25,000 or more awarded as of October 1, 2010 will require reporting two types of information. First, the name and total compensation of each of the prime grantee’s five top executives must be reported if the prime grantee (A) receives more than 80 percent of its annual gross revenues from the federal government, which revenues exceed $25 million annually, and (B) does not already report its executive compensation through the Securities and Exchange Commission. Second, without exception, a prime grantee must report specific data about all first-tier subgrants it awards that are valued at $25,000 or more. That data includes the name of the subgrantee and the amount and purpose of the award, the subgrantee’s location and the place of grant performance (including the congressional district), and the award’s Catalog of Federal Domestic Assistance program number and program source. Additionally, if a first-tier subgrantee meets the conditions for reporting executive compensation of grantees (items (A) and (B) above), the grantee must report the name and total compensation of each of the subgrantee’s five top executives.
Possibly in an effort to take some of the sting out of the reporting requirement, OMB officials presenting at the Town Hall stressed that grant reporting under the FFATA only needs to happen once – there is no continuing reporting requirement. A prime grantee will have until the end of the month following the month of obligation of a grant or first-tier subgrant subject to the reporting requirements, to report related executive compensation and/or subgrant information. Thus, for example, reporting related to a grant awarded October 1, 2010 and subject to the FFATA requirements must be completed by November 30, 2010.

As with contractor reporting under the FFATA, grantee reporting will take place though the FFATA Subaward Reporting System (“FSRS”), at While FSRS is currently open for contractor reporting, the site’s grant reporting functionality will not be available until October 29. FSRS has been programmed to receive data through the Central Contractor Registration database,, in which all prime contractors and grantees (but not subcontractors or subawardees) are required to register.

On October 7, OMB held the first of two planned webinars for grantees on how to use FSRS. Those wishing to receive updates on training and other developments related to FFATA reporting are encouraged to register at Those wishing the reporting requirements will go away are advised to keep wishing (and learn how to use FSRS in the meantime).  

Vote for this and we will support you! How the new definition of coordinated communications affects political speech in the wake of Citizens United.

This post was written by Christopher L. Rissetto, Lorraine M. Campos and Robert Helland.

The Public Policy and Infrastructure Practice continues to monitor the changes in the campaign finance world since the Supreme Court's landmark decision in Citizens United v. Federal Election Commission. Citizens United reverses decades of statutory and case law that prohibit corporations from using their general treasuries to fund independent political advertising supporting or opposing candidates for local, state or federal office, or what it is termed "express advocacy". 558 U.S. 50 (2010). It also removes restrictions on independent advertising released within close proximity to either a primary or general election and which refer to a clearly identified candidate for federal office (known as “electioneering”). This decision has been the equivalent of an earthquake in the campaign finance world, however, it does not provide corporations and labor unions with unlimited leeway when it comes to funding political advertisements. The attached alert from the Public Policy and Infrastructure Practice discusses one limitation that remains in place, post-Citizens United, which affects "coordinated communications" i.e. those coordinated with a federal candidate, campaign, or political party. Contributions that are coordinated with a federal candidate, campaign or political party are considered a direct, in-kind contribution and remain illegal in the case of corporations or labor unions, even with the Court's decision in Citizens United. 2 U.S.C. § 441b (a).

The Federal Election Commission has issued revised regulations as to what constitutes a "coordinated communication". These rules will take effect on December 1, 2010. The alert discusses these rules and what steps can be taken to ensure that a communication is truly independent.

To view the entire alert click here.

Congress' cap-and-trade action likely means EPA regulates GHGs beginning Jan. 2, 2011

This post was written by Christopher Rissetto, Larry Demase, Jennifer Smokelin, Bob Helland, and David Wagner.

In the weeks that have passed since our previous article on climate change activity in Congress and the Environmental Protection Agency, it has become evident that Washington is more likely to see a snowstorm this summer than congressional passage of a cap-and-trade measure for greenhouse gas emissions. Passage was never considered to be easy - something we noted in our previous alert. For example, the House of Representatives passed climate legislation in 2009 (H.R. 2454, sponsored by Congressmen Waxman (D-CA-30) and Markey (D-MA-7), but by only a six-vote margin. Still, the 2009 legislation, combined with the impact of the Gulf of Mexico Oil Spill, indicated to some that there was some momentum for a bill passing the Senate and reaching the President this year. But that momentum ran smack into the 60-vote requirement in the Senate, which all measures must clear before receiving a final vote. And the 60 votes were just not there - not for the Waxman-Markey measure or for the industry-specific compromise floated by Senators Kerry (D-MA) and Lieberman (I-CT) during the end of negotiations. It remains possible that the Senate could still take up a cap-and-trade measure, either when it meets from September 13 through October 8 or during its "lame-duck" session, set to begin November 15. But we would not recommend anyone holding their breath.

While action on cap-and-trade in the 111th Congress fizzled in the Senate, EPA has continued on its course of regulating greenhouse gas (GHG) emissions.  As reported in Reed Smith’s Environmental Law Resource blog, in response to EPA’s “Endangerment Finding,” a number of petitions for reconsideration were filed by various industry and special interest groups. These petitions challenge the validity of EPA conclusions that global warming is currently at an all-time high and assert that other geologic periods - e.g., the Medieval Warm Period and the Holocene period - were in fact warmer than present.  Specifically, the groups challenge data supporting reconstruction of historical earth temperatures and assert that certain e-mails involving scientists at the Climate Research Unit of the University of East Anglia in the United Kingdom demonstrate a deliberate and inappropriate manipulation of the data.  The petitioners also challenge the process by which EPA developed the scientific support for the Endangerment Finding; that is, they are claiming that EPA did not independently judge the underlying science and thus did not convene a truly independent external peer review.  Petitioners also claim EPA violated the Information Quality Act by failing to post the underlying data and scientific studies in the docket.  Finally, the petitioners assert that new scientific studies refute evidence supporting the Endangerment Finding.

On July 29, 2010, EPA denied all of the petitions for reconsideration and found, inter alia, that there were no significant errors in the Intergovernmental Panel on Climate Change’s (IPCC) Fourth Assessment Report, and that there was no conspiracy to manipulate the data. EPA also rejected the claim by petitioners that new scientific studies refuted evidence supporting the Endangerment Finding. The court challenges to the Endangerment Finding can now proceed. These challenges, however, are not as likely to be successful as the challenges to the Tailoring Rule, discussed next.

There are significant challenges to the Tailoring Rule, EPA's rule that "tailors" permitting programs to limit the number of facilities that would be required to obtain New Source Review and Title V operating permits based on their greenhouse gas emissions. If there is a chink in EPA’s armor, it rests in these challenges. The crux of these challenges focus on the threshold and timing determination in the final Tailoring Rule, in which EPA sets a threshold of regulation at 75,000 tons GHGs. This effectively leaves major industrial sources under that threshold unregulated until at least 2016, and perhaps beyond. In the draft regulation, EPA had proposed a 25,000-ton GHG threshold. Challengers to the Tailoring Rule argue that this switch from 25,000 to 75,000 tons is arbitrary and capricious with no scientific basis in the record to support it. And they may be right. Last week, 20 of the lawsuits against EPA's tailoring rule were consolidated by the U.S. Court of Appeals for the District of Columbia Circuit. The case's court date has not yet been set. For more discussion, see here.

On the regulatory front, EPA continues to press its authority under the Endangerment Finding. Following up on its Tailoring Rule, on August 12, 2010, EPA proposed two rules regarding GHG emission permitting under the Clean Air Act . In the first rule, EPA proposed to require permitting authorities in 13 states to make changes in their implementation plans to ensure that GHG emissions will be covered. Other states are to inform EPA if their existing permitting authority does not allow them to address GHG emissions. In the second rule, EPA is proposing a federal implementation plan that would allow EPA to issue permits for covered GHG sources located in states not able to develop and submit revisions to their implementation plans before the Tailoring Rule becomes effective. Neither of the rules has been published in the Federal Register yet. Once they are published, EPA will schedule a public hearing on the federal implementation plan rule likely in Arlington, Va., in September.

This summer, EPA also issued its proposed “Transport Rule” to provide for the attainment and maintenance of the 1997 and 2006 fine particulate matter National Ambient Air Quality Standards and the 1997 ozone NAAQS. While targeting only reductions in emissions of NOx and SO2 transported between the states, many believe this rule will have a dramatic impact on the viability of coal-fired electric generating capacity in the eastern United States.  The Transport Rule is discussed in more detail at the Environmental Law Resource.

Finally, the Obama Administration is also considering a variety of actions it can take without Congress. In a report entitled, “Plan B: Near Term Presidential Actions for Energy and Environmental Leadership,” the Presidential Climate Action Project concluded that President Obama could implement the following ideas prior to the United Nations 16th Conference of the Parties in Cancun:

  • Work with states and local governments to create a national roadmap to the clean energy economy
  • Declare war on energy waste
  • Begin reinventing national transportation policy
  • Eliminate fossil energy subsidies under the Administration’s control
  • Establish ecosystem restoration as a climate action strategy

Financial Regulatory Reform: We've Only Just Begun

This post was writen by Chris Rissetto and Joelle Laszlo.

While most people probably do not associate actions of Congress with the 1970s American pop band The Carpenters, there is a nice reminder in the duo’s music that the passage of a bill on the Hill is often only the first step in an extensive process to draw up the actual rules that will govern how American businesses are to behave. According to an analysis by the U.S. Chamber of Commerce, for example, implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or “the Act”) will require 520 rulemakings, 81 studies, and 93 reports. Ten Federal entities, including the Federal Reserve (“Fed”), the Treasury Department (“Treasury”), the Securities and Exchange Commission (“SEC”), and two agencies created by the Act – the Consumer Financial Protection Bureau and the Financial Stability Oversight Council – will be responsible for solely or jointly issuing new rules under the Act. The SEC (both on its own and with the Commodities and Futures Trading Commission), the Fed, and Treasury’s Office of the Comptroller of the Currency have already issued a variety of requests for comments and notices of proposed rulemaking pursuant to the Act.

The Administrative Procedure Act sets forth the specific steps and timeline that Federal agencies must follow when proposing regulations pursuant to Congressional action, but the proverbial devil always lurks in the details. Furthermore, citing the extensive rulemaking that will take place under Dodd-Frank, the SEC has implemented a ‘pre-rulemaking’ process for accepting public comments on a number of issues within the Act’s purview, and other agencies are undertaking similar actions to enhance public participation in the rulemaking process, beyond what is required by law. All of this means that a company with even a passing interest in how the regulations shake out will be best served by developing a comprehensive rulemaking agenda. Such an agenda should take into consideration not only the rulemaking agencies (and their three-pronged goal to promulgate practically-, legally-, and politically- sustainable regulations) but also the Congressional Committees and Members who will be responsible for overseeing agency activities under and compliance with Dodd-Frank. Companies that take this kind of proactive approach will have the best opportunity for ensuring a regulatory future that isn’t all rainy days and Mondays.

The critical litigation and enforcement risks financial institutions will face as a result of Dodd-Frank were the subject of a teleseminar presented this week by Tom Allen, Roy Arnold, Amy Greer, and Chris Rissetto. The seminar was the third in a month-long Reed Smith series on Financial Re-Regulation. The final teleseminar in the series, addressing Dodd-Frank’s expected impact on securitization and related aspects of capital markets, will take place on Tuesday, August 31 beginning at noon EDT.

The 2011 National Defense Authorization Act - the "Unauthorized" Story on More Proposed DoD Contracting Reforms

This post was written by Stephanie Giese.

The passage of the Weapon Systems Acquisition Reform Act of 2009 (“WSARA”) signed into Public Law 111-23 on May 22, 2009, and most notably the Organizational Conflict of Interest (“OCI”) provisions of the WSARA, arguably marks the start of the Congress' tear to reform Department of Defense (“DoD”) contracting.  The reforms required by the WSARA OCI provisions alone have kicked off a restructuring of the defense industry, beginning with major weapon system developers like Northrop Grumman and Lockheed Martin selling their Systems Engineering and Technical Assistance business units – even before DoD promulgates the new OCI regulations implementing the WSARA, which are expected in the fourth quarter of 2010.

Congress’ reform theme is now being carried over to other aspects of DoD contracting in the 2011 National Defense Authorization Act (“2011 NDAA”).  Given the potential dramatic effect of past reforms mandated by the WSARA, defense contractors should understand the impacts of both the House (H.R. 5136) and Senate (S. 3454) versions of the 2011 NDAA, as well as plan to participate in the DoD rulemaking process that will ultimately implement many of the 2011 NDAA reforms.
Here are some of Congress’ latest proposed reforms for defense contractors to watch in the House and Senate versions of the 2011 NDAA:

  • Contractor’s beware—the government may obtain “unlimited rights” to certain contractor technical data developed a private expense.  Among other changes related to technical data, the Senate proposes granting the government unlimited rights in technical data developed “without significant contribution by a contractor or subcontractor”.  “Without significant contribution” is not defined in the bill, but this proposed change would certainly expand the government’s unlimited rights to certain data funded, in part, at the contractor’s expense.
  • Reform regarding government review of contractor business systems may increase compliance costs and delay payments to contractors.  For contractors subject to the Cost Accounting Standards, the Senate proposes that a “significant defect” in a contractor’s business system, which is one that undermines the reliability of the data produced by that system, is grounds for the DoD to withhold up to 10% of payments due to a contractor.  Business systems that may be reviewed by DoD include accounting systems, estimating systems, purchasing systems, earned value management systems, material management and accounting systems, and property management systems.
  • DoD evaluation of contractor proposals may be limited to “best cost” to the government rather than “best value” to the government in the future.  The House proposes modifying current law to require DoD to weight cost or price at least equal to or greater than all other evaluation criteria in a government competitive source selection.  This would severely limit the DoD’s ability to conduct a best value evaluation of contractor proposals, including for procurements where contractor innovation is required such as in research and development contracts, and would essentially require the DoD to award to the lowest priced offeror for all its procurements.
  • Due process lacking for defense contractors and subcontractors that supply cybersecurity products and services, information technology, and national security systems to the DoD.  Such DoD contractors should be aware that, in the name of reducing supply chain risk, the Senate intends to grant the head of a procuring agency, on the basis of a joint recommendation by the Director of the Defense Intelligence Agency and the Assistant Secretary of Defense for Networks and Information Integration, the authority to exclude a particular source from competing for a DoD contract on grounds that the supplier presents an unacceptable supply chain risk.  The bill does not require the DoD to allow the supplier to mitigate the risk before excluding the supplier.  For additional discussion of current cybersecurity issues facing DoD, please see the Reed Smith article, “Cloud Computing—The Key Risks and Rewards for Federal Government Contractors.”
  • The U.S. space industrial base may get a boost from additional federal government investment.  The Senate proposes requiring the Secretary of Defense, in consultation with the National Aeronautics and Space Administration (“NASA”), to take steps to preserve the industrial base for liquid rocket propulsion systems and solid rocket motors. I n addition, the House proposes directing the Secretary of Defense and the Director of National Intelligence to jointly establish a national security space architecture to guide and coordinate each agency’s long-term investment in the space industrial base.
  • Reminder that defense contractors, with the exception of weapon system developers, may soon be required to go “green” to compete for DoD contracts.  As currently drafted, the Senate bill requires DoD to report its progress to Congress in complying with Executive Order 13514 of October 5, 2009 which requires the head of a procuring agency to “advance sustainable acquisition to ensure that 95 percent of new contract actions including task and delivery orders, for products and services with the exception of acquisition of weapon systems, are energy-efficient (Energy Star or Federal Energy Management Program (FEMP) designated), water-efficient, biobased, environmentally preferable (e.g., Electronic Product Environmental Assessment Tool (EPEAT) certified), non-ozone depleting, contain recycled content, or are non-toxic or less toxic alternatives, where such products and services meet agency performance requirements.”

Industry’s Acquisition Reform Working Group provided its recommendations and concerns regarding the 2011 NDAA to the House and Senate Armed Services Committees on July 28, 2010.

UK Health Care Overhaul

This alert was written by Edward Miller, Eugene Tillman, Cynthia O’Donoghue, and Leon Stephenson.

The arrival of the new UK Coalition Government has brought with it proposals to reform the health care system in the UK over the next four years, detailed in its much publicized White Paper “Equity and excellence: Liberating the NHS”.

The stated objectives are ambitious and if instituted will have a far reaching effect on both the way the British public access the health system and the role of the private sector in UK health care. Although the White Paper does not go so far as to indicate that privatization of the NHS as such is being considered, the Government’s tone is bold in as much as it advocates public choice and recognizes that resultant competition must include third party private providers.

The key themes of the White Paper are based on choice for the patient, flexibility for the commissioning consortia, encouraging competition and social enterprise. This, within an ambitious four year timetable, indicates that there will be room for unprecedented private, for profit and non-profit and third sector involvement in the reform of the UK health care system.

To view the entire alert, please click here.

Post Gulf Oil Spill: Will Climate Change Be Part of Federal Energy Initiatives?

This post was written by Chris Rissetto, Larry Demase, and Bob Helland.


The oil spill in the Gulf of Mexico has increased the chances that Congress will send energy-related legislation to the President's desk before the midterm congressional elections in November. We note that last year the House of Representatives passed and sent to the Senate H.R. 2454, the American Clean Energy and Security Act of 2009, which sets goals for reducing emissions of greenhouse gases, including carbon dioxide, by a cap-and-trade system. The Senate has now gotten involved, with Majority Leader Reid (D-NV) soliciting proposals from Senate committees with jurisdiction on energy issues by the July 4 congressional recess. In addition, Republican and Democratic Senators recently met with the President to discuss compromise measures. Given the debate, and divisions, on climate change, it is not clear whether a cap-and-trade system for greenhouse gas emissions will ultimately be included in an energy bill that reaches the President's desk. However, if Congress fails to act in this area, it remains possible that the Environmental Protection Agency ("EPA") will step in and use its authority under the Clean Air Act (42 U.S.C. 7401) to create a cap-and-trade program. EPA has already taken several steps to regulate Green House Gases ("GHGs"). However, with climate legislation uncertain challenges to EPA's ability to regulate GHG's also mount. If Congress or EPA does not create a federal cap-and-trade program, a variety of existing state initiatives may fill the void.

The following Client Alert discusses the efforts to enact energy measures and where the fault lines lie in the ongoing debate. A thorough understanding of the actions both in Congress and the Obama Administration is required to understand the interplay of both legislation and regulations, and the opportunity that exists to address their impact within both the legislative and executive branches. Reed Smith's Public Policy & Infrastructure Practice, in collaboration with its Environmental Practice, has been monitoring energy and climate change deliberations throughout the 111th Congress, and is available to discuss how to develop an immediate lobbying strategy, as well as a longer-term effort that works with both Congress and the Obama Administration.

DOE Grant Announcements: Solar, Marine & Hydrokinetic Technologies

This post was written by Chris Rissetto, Henry King, and Bob Helland.


The Department of Energy ("DOE") has announced the availability of more than $171 million in grants, cooperative agreements, and technology-investment agreements "to expand and accelerate the development, commercialization, and use of solar and water power technologies throughout the United States".  This funding continues a strong emphasis in the DOE, since the passage of the Recovery Act, on projects that promote alternative energy development, sustainability, and green jobs.  The goal is to further the development of "evolving technologies," i.e., those that are not existing commercial technologies.  This Client Alert provides key details behind the two major initiatives included within these announcements, particularly what information is necessary to complete a competitive application.

The Public Policy & Infrastructure Practice has worked with a number of Reed Smith clients in crafting competitive applications for grant funding and complementary strategies to achieve funding, including obtaining support and assistance from members of Congress. We remain available to assist in the preliminary notice and development of a competitive application for funds under these Funding Opportunity Announcements ("FOAs").

TIGER II Roars Again: Continuation of Stimulus Act Transportation Funding

This post was written by Chris Rissetto, Bob Helland, Jonathan Benner and Matt Thomas.

The Department of Transportation has announced the availability of $600 million in grants for capital investments in surface transportation infrastructure for projects that "will have a significant impact on the Nation; a metropolitan area; or a region" (Docket No. DOT-OST-2010-0076).  This program is a continuation of a program begun under the "Recovery Act," known as the Transportation Investment Generating Economic Recovery ("TIGER") Discretionary Grant Program.  Under TIGER, $1.5 billion of grants were awarded in 2009.  Congress appropriated $600 million for TIGER, made some changes to the program for Fiscal Year 2010 in the Consolidated Appropriations Act, 2010, and the program is now known as the TIGER II Discretionary Grant program.

To view the entire alert, please click here.

President Signs Into Law $17.6 Billion Jobs Creation Package

This post was written by Chris Rissetto, Jim Burns, and Bob Helland.

This week, President Obama signed into law a $17.6 billion jobs creation package passed by Congress, H.R. 2847, the Hiring Incentives to Restore Employment Act ("HIRE Act"). This legislation includes incentives for businesses to hire the unemployed; extension of infrastructure programs affecting surface transportation, energy, and school construction projects; and continuation of depreciation programs in effect for small businesses. We note that this legislation, when first taken up and passed by the House of Representatives in December 2009, was a much broader measure that included: tax credits for businesses for hiring the unemployed, as well as other credits directed at small businesses; extension of assistance to help to pay COBRA healthcare premiums; and funding for new infrastructure and clean energy programs, among other items. Senate Majority Leader Reid (D-NV), recognizing he did not have the votes to support such a measure at the time, instead wrote a smaller bill. That does not mean, however, that Congress will not consider additional measures to address the nation's economic woes. Legislation is already under consideration, for example, to 1) either provide additional tax incentives for businesses or extend expiring ones; 2) extend unemployment insurance and provide health insurance subsidies for the long-term unemployed; and 3) provide additional funding for infrastructure programs. All of this is being done against a background of continued economic concerns and a Congress where many members are facing difficult re-election races in the fall. As a result, an environment exists to pursue lobbying opportunities in these areas for the remainder of the 111th Congress.

To view the entire alert, please click here.

Financial Regulatory Reform: Coming to the Finish Line?

This post was written by Chris Rissetto, Bob Helland, Michael Bleier, Peter Blasier, and Perry Napolitano.

The next few weeks are make-or-break for the Obama administration and Congressional Democrats as they consider separate and often competing proposals on the regulation of financial institutions. The House of Representatives last year passed its own version of legislation, H.R. 4173, the "Wall Street Reform and Consumer Protection Act of 2009," sponsored by the Chairman of the House Financial Services Committee, Rep. Barney Frank (D-Mass.-4) ("H.R. 4173"). This legislation would create a "Financial Stability Council" to identify those at-risk financial institutions whose failure would most likely hurt the nation's financial system; and it also establishes a process for dismantling those institutions without the need for taxpayer funds. In addition, it would create a Consumer Financial Protection Agency to protect consumers against unfair financial practices.

Over in the Senate, Sen. Christopher Dodd (D-Conn.), the Chairman of the Banking, Housing and Urban Affairs Committee, is working on his second proposal (the first effort last year having been withdrawn) and has held talks on this with both the Ranking Member of the Committee, Sen. Richard Shelby (R-Ala.), and another member of the committee, Sen. Bob Corker (R-Tenn.). While a full draft of Sen. Dodd's bill has not yet been made public, elements are being released for Senate comment, as Sen. Dodd attempts to produce a bipartisan bill. Finally, the Obama administration has upped the ante by recently proposing restrictions on (1) bank size and (2) the ability of banks to buy and sell financial instruments with their own funds, not their customers', customarily referred to as "proprietary trading."

The window for getting a bill passed by both Houses of Congress and to the president's desk is quickly closing. Congress has only a few months to consider the huge issues pending before it on health care, the economy, and financial regulation before it adjourns for the summer. We do not see any significant legislative activity occurring in the fall as members head home to campaign in the midterm congressional elections. So what happens next is pivotal to the success of the proposed reforms. This Client Alert provides (1) a discussion of some of the key issues in the regulatory reform proposals being debated between Congress and the Executive Branch and within Congress itself, and (2) suggested possible affirmative steps that might be taken to influence that process.

To view the entire alert, please click here.

FEC Starts to Make Citizens United a Reality

This post was written by Chris Rissetto, Lorraine Campos, Joelle Laszlo, and Bob Helland.

As we previously noted, the Supreme Court has ushered in a new dawn on corporate political spending in its recent decision in Citizens United v. Federal Election Commission, 558 U.S. ____ 2010. This decision reverses decades of statutory and case law that prohibits corporations from using their general treasuries to fund direct political advertising against candidates for local, state or federal office, or what it is termed "express advocacy." It also removes restrictions on electioneering advertising done within close proximity to either a primary or general election, and that also refers to a clearly identified candidate for federal office. The ramification of this decision will likely be felt for some time to come, and the Reed Smith Public Policy & Infrastructure Practice would like to note the latest development, a series of immediate steps that the Federal Election Commission ("FEC") announced in a February 5, 2010 press release, posted on its website. The FEC will also undertake a longer-term course of action to "fully implement" the Court's decision, and provides some basic guidelines to corporations and labor organizations intending to finance independent expenditures or electioneering communications. We offer this analysis of what has happened and what to expect.

Interim Steps: Enforcement and Rulemaking and Disclosure

One of the first things the FEC announced in its press release, not surprisingly, is that it will stop enforcing the statutes and regulations in place that ban either express advocacy or electioneering advertising. Thus, the FEC will no longer pursue claims, information requests, or audit actions related to those restrictions. Also, the FEC is reviewing all pending enforcement matters to determine which are affected by the Citizens United decision. Finally, the FEC "will no longer pursue information requests or audit issues" related to either express advocacy or electioneering claims.

This change in approach was anticipated in the aftermath of the Citizens United decision. In our January 25 teleseminar on the decision, we also predicted that the FEC would go beyond the Court's mandated disclosure for issue ads, and require organizations also to disclose their involvement in express advocacy. This is precisely the approach the Commission announced last week. Specifically, corporations and labor unions intending to undertake independent expenditures or fund electioneering communications must include the appropriate disclaimers on those communications, and must disclose independent expenditures on FEC Form 5, and electioneering communications on FEC Form 9.


Longer-Term Impacts: Formal Rulemaking Expected and Review as to What Constitutes a "Coordinated Communication"

The FEC will also conduct a formal rulemaking to revise the regulations directly affected by Citizens United, though it has not announced when that rulemaking will occur. In the meantime, the Commission is accepting comments about how Citizens United affects its ongoing rulemaking with regard to the "coordinated communication" test that governs when a corporate political expenditure is considered an in-kind contribution, subject to campaign finance limits and disclosure requirements. The FEC will hold a public hearing on the matter March 2 and 3, 2010; anyone seeking to testify must include such a request with their comments, which are due on or before February 24.

It is clear that we are only beginning to see the impact that Citizens United will have on corporate, union, and most likely trade association political activity. As we noted during our January 25 teleseminar on the decision, and as is visible in the specific questions posed by the FEC in its supplemental "coordinated communication" rulemaking, the Court's invocation of First Amendment rights has forced great scrutiny of both the basic outlines and the minute details of current regulations on organizational election expenditures. Until the dust settles, corporations and unions intending to finance independent expenditures or electioneering communications should continue to observe the disclaimer and disclosure requirements left unharmed by the Court's decision.

A New Dawn on Corporate Political Activity

This post was written by Lorraine Campos and Bob Helland.

Today, the United States Supreme Court issued a groundbreaking decision that impacts the political activity of every corporate entity. In Citizens United v. Federal Election Commission, 558 U.S. ____ 2010, the Court held that restrictions on corporate spending in political campaigns, whether directed to a candidate or to an issue, violated the First Amendment's protection of political speech. This decision, which is expected to be applied to labor unions, 527s, and trade associations, will radically alter the role such organizations will play in elections. While the application of this decision will likely be subject to further regulation by agencies, including the Federal Election Commission, we address key elements of the decision and how it will impact the ability of corporations and others to express their opinions on issues or political candidates.

The Supreme Court's decision in Citizens United has three elements that impact corporate political activity:

  • Lifted Ban on Direct Corporate Political Expenditures. Most surprisingly, the Court held that a prohibition on corporations from using their general treasury funds to pay for campaign advertisements for or against an (1) issue or (2) political candidate was unconstitutional. However, corporations are still prohibited from making direct political contributions to candidates or political parties.
  • Lifted Ban on Electioneering Activities Within Close Proximity of Primary or General Election. The Court held that a prohibition imposed by the McCain Feingold Bipartisan Campaign Reform Act of 2002 ("McCain Feingold') on "electioneering communication," i.e., those made by broadcast, cable or satellite, made within 30 days of a primary election or 60 days of a general election, was unconstitutional.
  • Required Corporate Disclaimers. The Court held that a disclaimer requirement, also mandated by McCain Feingold, that identifies the corporation behind the advertisement was constitutional.

This decision upends the Court's precedent that corporations may not use their general treasury funds to support or oppose candidates, and radically transforms the political role of corporate entities. We anticipate additional regulatory guidance, and will be analyzing such guidance and providing assistance related to campaign donations, electioneering activities and disclaimer requirements.

From the Carrot to the Stick: EPA Outlines Punitive Measures to Reduce Pollution in the Chesapeake Bay Watershed

This post was written by Chris Rissetto, Lou Naugle, Bob Helland, and David Wagner.

Last week, the U.S. Environmental Protection Agency ("EPA") outlined what it terms a "rigorous accountability framework" for addressing pollution levels in the Chesapeake Bay and its tributaries. This is the latest in a series of federal efforts to address levels of nitrogen, phosphorus and sediment in the Chesapeake Bay watershed that are harmful to both animal and plant life. Most significant about these measures is that they include, for the first time in the 26-year history of the cleanup effort of the Chesapeake Bay, a number of punitive measures intended to force compliance with pollution controls by the six Chesapeake Bay states—Delaware, Maryland, New York, Pennyslvania, Virginia and West Virginia—and the District of Columbia.

This update outlines the punitive measures being imposed by the EPA, including the legal issues raised. It also describes the regulatory regime in place to address pollution levels. This regulatory approach was overhauled by the Obama administration in Executive Order 13508: Chesapeake Bay Protection and Restoration, dated May 12, 2009. This Executive Order, and the Draft Strategy proposed by the EPA that followed it, outlined a new strategy for cleaning up the Bay, including the punitive efforts announced this week. Finally, this update discusses what measures are expected in 2010.

To read the full client alert, please click here.