Special Policy Briefing: Tax Reform

On Tuesday, March 28, Cozen O’Connor Public Strategies hosted a special briefing on the prospects and impending efforts surrounding tax reform in Washington, D.C. I was joined by Dawn O’Donnell, former tax counsel to the Senate Finance Committee, who we have formed a partnership with to help clients on tax-related intelligence gathering and lobbying. Together, we provided insight into the process and policy that will take shape in the weeks and months ahead and gave advice to those interested in engaging with decision-makers. You can listen to the call at the following link. https://soundcloud.com/cozen-oconnor/tax-policy-briefing

Tax reform will remain at the forefront of the agenda and will affect virtually every industry so we will be hosting additional briefings in the near future. Subscribe to stay informed about upcoming briefings.

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American Infrastructure Receives Poor Rating in Latest Quadrennial Review

In its quadrennial review of the state of American infrastructure, the American Society of Civil Engineers (ASCE) gave the nation’s ports, bridges, airports, and other key systems a D+ rating. While this rating is an alarming testament to the need for increased investment in a spectrum of infrastructure projects across the country, calculated to be a whopping $4.59 trillion dollars by the report’s estimate, it is not an altogether unsurprising assessment. The 2013 average rating was also a D+, only a slight improvement from the D rating ASCE gave out in 2009 and 2005. American infrastructure has become a familiar punching bag for both sides of the aisle; the newly ASCE report card simply confirms what is already known.

The 2017 report card scores sixteen categories of infrastructure ranging from transit and wastewater to schools and public parks. Rail infrastructure received the highest grade, a B, while transit received the worst grade, a D-. Six categories stayed unchanged from their 2013 ranks, while parks, solid waste, and transit all declined in quality since the last assessment. See the full report here.

Published days after President Trump renewed calls for a one trillion dollar investment in infrastructure programs, and in the midst of a frenzy of congressional hearings seeking input on the best way to finance the ambitious plan, ASCE’s report comes at a crucial time for infrastructure reform. While opportune, the report’s real value will be measured by its ability to spur Congress and the Administration into action. That the country’s infrastructure needs are skyrocketing is hardly headline news; whether or not Washington will heed the repeated warnings of industry experts, however, remains the crucial unknown. If it does, the important question is still how the investment will be funded.

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House Judiciary Committee Hearing: The Department of Homeland Security’s Proposed Regulations Reforming the Investor Visa Program

March 8, 2017

Panel One Witnesses:

Senator Chuck Grassley (R-IA), Chair of the Senate Judiciary Committee

Senator Patrick Leahy (D-VT), President Pro Tempore

Panel Two Witnesses:

Rebecca Gambler, Homeland Security and Justice Team, U.S.  Government Accountability Office

Sam Walls III, Managing Director, Pine State Regional Center

Angelique Brunner, Founder and President, EB5 Capital

Dekonti Mends-Cole, Director of Policy, Center for Community Progress

David North, Fellow, Fellow, Center for Immigration Studies

The House Judiciary Committee convened a hearing discussing the proposed rule from the Department of Homeland Security (DHS) on the EB-5 program. The hearing hosted two panels of witnesses, the first with U.S. Senators Chuck Grassley (R-IA) and Patrick Leahy (D-VT).  Both senators outline their perceived issues with the EB-5 program and their efforts to reform the program in the past.  Senator Grassley referred to the program as a producer of “rampant waste, fraud and abuse.”  Senator Leahy echoed his statement, calling the program “a magnet for fraud.”  Both Senators stressed their belief that the program had drifted from the original intent when Congress established the program in 1990.  This theme was reverberated throughout the hearing by witnesses and members alike.  The pair closed their testimony by calling the DHS’ proposed reforms an encouraging sign.

Throughout the hearing various witnesses and members emphasized a similar list of issues with the program.  It began with the need to raise the minimum investment level.  The two tier investment minimums have not changed since the program was created in 1990 and every witness underscored this issue.  The second issue developed out of the structure of the two tier system.  The lower tier was formed to create a financial incentive to invest in two categories, rural areas or distressed areas, referred to as Targeted Employment Areas (TEA) by offering a lower threshold of investment in that tier.  However, over time the $500,000 lower tier has become the rule and not the exception as intended.  Through census “gerrymandering,” according to witnesses and members, applicants have created TEAs in affluent areas.  Using various numbers of census tracts (permanent statistical subdivisions of a county or entity) program participants manipulated the system and qualified for the lower tier investment tier of $500,000 versus the “normal” million dollar tier.  This manipulation had created a disparity between rural/distressed areas funds and funds going into affluent areas.

Chairman Bob Goodlatte (R-VA), attempted to illustrate the gerrymandering and disparity in funds in his opening statement.  He used the advertisements for a luxury condominium complex, Hudson Yards, which had received EB-5 money and is pricing condos at around the seven million dollar point, as an example of how the program had shifted away from the original purpose.  Chairman Goodlatte cited a Government Accountability Office (GAO) report which showed that 90% percent of the investment funds in the report’s sample went to areas that had unemployment levels in the range of 0-6%, when TEAs are required to have unemployment levels that are 150% higher than the national average.  Goodlatte ended his remarks by citing former Homeland Security Secretary Jeh Johnson’s efforts and the DHS proposed rule as positive ventures.  The proposed rule would increase the minimum investment level to 1.35 million dollars and, in his opinion, take great steps to address the gerrymandering occurring with TEAs.

Ranking Member John Conyers (D-MI) echoed Chairman Goodlatte in the issues that infect the EB-5 program and called for productive and efficient reforms.  Ranking Member Conyers   emphasized the gerrymandering concern and the resulting consequences of funds being directed towards affluent areas instead of areas such as Ranking Member Conyers’s district, which is the second poorest in the nation.  Conyers referred to the proposed reforms from DHS as encouraging sign but said that Congress would need to enact legislative reforms and that he would not support reauthorization of the program in its current status which is due to expire in April.  This was a sentiment shared by a number of other members.

Rebecca Gambler of the GAO expanded on the GAO report on the EB-5 program and the problems that the report discovered.  She discussed the statistics Chairman Goodlatte had highlighted and added on to the faults by turning to the issue that many investors are able to claim jobs that are not the direct result of the investment.  She also mentioned the fact that the great majority of the projects were in real estate such as hotels, resorts, commercial and residential property developments.  Chairman Goodlatte later in questioning inquired about this, since real estate only takes up 6% of the U.S. economy and yet encompasses 75% of EB-5 projects.  Gambler said that question would require additional investigation but it was centered on where funds were available.

Sam Walls III of the Pine State Regional Center was able to provide an example of a rural success story.  Pine State Regional Center creates partnerships with banks and businesses expanding in the state of Arkansas.  He cited a steel manufacturing plant which was built with EB-5 funds as an example of a TEA with success as it employs locals at wages and benefits far better than those available in the local job market.  Mr. Walls throughout his testimony referred to the program as having drifted away from congressional intent and that rural investment is undercapitalized.  Chairman Goodlatte inquired to the incentive for rural communities, which Mr.  Walls stated was difficult for rural areas to attract funds despite the incentive tier.

Angelique Brunner, of EB-5 Capital, a regional center headquartered in Maryland discussed her work to revitalize the District of Columbia.  She urged members to focus on legislative reform and to address regulatory reform later.  In a break with the rest of the panel of witnesses, Ms.  Brunner stated that she believed they should remove the two tier system.  Her argument rested on the failure of the incentive mechanism the tier system had created.  The lower tier had been created as an exception but the usage of the EB-5 program had shown the exception had “swallowed” the rule.  She added that the rural areas or TEAs should not have to accept less money to incentivize people to invest in their areas and Congress should find another mechanism to incentivize investors, possibly a fast tracking of applications or set aside visas.

Dekonti Mends-Cole, Director of Policy at the Center for Community Progress, presented examples of urban programs in TEAs.  She described the exodus of people from older industrial areas such as Detroit and need for investments in those areas.  She argued for a redefinition of Targeted Employment Areas (TEA) with a nod to population for urban areas and an eye on census tracts which were being used to inflate unemployment numbers in areas investors planned to build.  Ranking Member Conyers asked about the nature of the projects in Detroit.  Mends-Cole responded that vacant buildings have attracted developers and food deserts have been successful projects.

David North of the Center for Immigration Studies was more skeptical of the EB-5 program as a whole but agreed with the sentiments of the panel.  His testimony focused on the various ways the program is abused by investors.  His conclusion was that the DHS reforms were productive but should add a clause that any jobs created should be only for U.S. residents, citing examples of foreign workers being brought in.

Several members inquired of the vetting process for the investors and if malicious individuals were able to maintain U.S. visas.  Gambler was unable to expand on the basic vetting they do but offered to answer the question more fully with additional information to the members at a later date.  Many members were concerned over the nature of “selling citizenship” as Rep.  Darrell Issa (R-CA) called it.  There were a few members who objected to the EB-5 program as a whole and declared that the United States should focus on bringing American capital back to the U.S and not attracting foreign investors.  Nevertheless the issue was widely embraced by members of both sides and there is clear bipartisan support for DHS’ reforms, which many perceived it to be a step towards legislative reform.



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Cozen O’Connor Policy Progress Amidst Chaos?

Listen to the latest episode of our podcast, the Beltway Briefing, to hear our take on the latest developments in DC – Presidential Twitter habits, White House functionality, and the emerging debate over the future of the Affordable Care Act.

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TSA Under Pressure from Congress – Again

The Transportation Security Administration (TSA) came under bipartisan scrutiny from the House Committee on Oversight and Government Reform over its record keeping policies after the Department of Homeland Security’s (DHS) Inspector General released a report finding that TSA “cannot be trusted” to accurately determine the confidentiality of internal documents. Chairman Jason Chaffetz (R-UT) alleged that the agency systematically classifies potentially embarrassing documents as “Security Sensitive Information” (SSI) to cover up retaliatory actions taken by TSA against whistleblowers. His claims were supported by committee members from both sides of the aisle who grilled acting TSA Administrator Huban Gowadia for almost three hours about the agency’s operating procedures and culture.
Chairman Chaffetz and Ranking Member Elijah Cummings (D-MD) criticized TSA’s practice of providing complete records to the Department of Homeland Security’s (DHS) Inspector General while redacting or withholding some of that same information from the U.S. Office of Special Counsel (OSC). The committee leadership accused Gowadia of trying to cover up embarrassing documents, particularly related to the alleged practice of forcefully reassigning personnel to new posts around the country as punishment for whistleblowing.

Gowadia, who served as Deputy Administrator under the Obama Administration before becoming acting chief in January, defended her agency claiming that departmental guidance allows TSA to withhold information from OSC, a claim that Chaffetz and panelist vehemently refuted. As the hearing reached its peak level of tension, Chaffetz ordered Gowadia’s staffers out of the committee room to call DHS headquarters for permission to produce the name of specific attorneys who advised Gowadia on TSA’s right to claim attorney-client privilege.

When the staffers did not return by the end of the hearing, Chaffetz threatened to subpoena TSA for the withheld and redacted documents if Gowadia did not provide by March 10 backdated attorney-client privilege logs and the specific names of DHS attorneys who had provided the departmental guidance.

Chaffetz dismissed the hearing by vowing to “go to the ends of the earth” with his probe into TSA. His investigation into the agency’s record keeping practices comes at a time when officials across the federal government have come under public scrutiny for improper records management practices, such as using personal emails and unsecured phones.

The methodology behind Chaffetz’s selections of which instances to investigate is unclear, but the TSA hearing indicates that this is just the beginning. While this scattered approach to oversight of DHA and TSA is concerning, it serves to highlight the complexity of congressional oversight of DHS. Regardless of the outcome, the biggest question still remaining is whether the fight with Congress will distract TSA leadership from its core mission as the busy summer travel season approaches.

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Senate Begins Consideration of Regulatory Review with Analysis of President Trump’s Executive Order

In a Senate Commerce committee hearing, “A Growth Agenda: Reducing Unnecessary Regulation,” on Wednesday, February 1, Senate Democrats called the January 31 regulatory executive order “arbitrary” and “mindless” (learn more about the order here). Ranking Member Nelson (D-FL) criticized the order for its hyper focus on the costs and lack of attention to the benefits of regulations for public health and safety. Chairman Thune (R-SD) briefly commented on the order, calling its intention positive, although its form “blunt.” One witness, Professor Lisa Heinzerling of Georgetown University, echoed Senator Nelson and called the order “arbitrary” and remarked that the two for one ratio is a better “soundbite” than policy. Another witness, Rosario Palmieri of the National Association of Manufacturing, stressed the need to form a better balance in the regulatory process, emphasizing the analysis of the cost/benefit value of a regulation. The hearing did little to illustrate any clarifying aspects of the order, which is still greatly unexplained by the White House. The execution of the executive order, the implications on the various elements of the already strenuous review process, and the authority of the OMB Director remain unclear and will have to be explained soon or criticism from Congress is likely to grow. One thing is clear, without further guidance, regulatory personnel at all agencies will have a tough time getting work done even after the current regulatory freeze is lifted.

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Trump Takes First Step Toward Dismantling ACA and Buys Time with an Executive Order: Is it Substantive or Merely Symbolic?

Hours after taking the oath of office President Donald Trump signed a broadly worded executive order (“Order”) intended to minimize if not eliminate the impact of the ACA’s least popular provisions. With the Order President Trump can claim immediate action towards fulfilling a major campaign pledge while giving his administration and the Republican led Congress time to come up with a replacement plan.

The Order directs the secretary of HHS and other agency heads to, among other directives:

[E]xercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [ACA] that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications. [And] [t]o . . . exercise all authority and discretion available to them to provide greater flexibility to States and cooperate with them in implementing healthcare programs. [And] [t]o . . . encourage the development of a free and open market in interstate commerce for the offering of healthcare services and health insurance, with the goal of achieving and preserving maximum options for patients and consumers.

The Order makes it clear that any agency actions under the order must be within the confines of the law and its existing regulations, both of which remain in place at least for now. The agencies still have the option of amending or repealing ACA regulations but the Order gives them the authority to take some action before going through the regulatory approval process.

Apparently, the agencies will decide which stakeholders’ costs and “burdens” under the ACA will be reduced. This presents them with an interesting challenge given the opposing interests inherent in the broad group of stakeholders expressly targeted for relief under the Order. For example, if the scope of the individual mandate (likely the prime target of the Order) were reduced relieving some individuals of the cost of buying health insurance, it would likely skew the risk pool of the exchange plans to less healthy participants increasing the cost and burden on the exchange’s insurers and those individuals who want to purchase insurance through the exchanges. That action could also end up reducing overall insurance coverage increasing the uncompensated care hospitals and other providers would be required to deliver.

Perhaps the most interesting aspect to watch, however, will be whether the Order ultimately has any significant substantive effect or simply ends up being a symbolic gesture. Some observers have contended that significant delays to, or gutting of, a portion of the ACA’s tightly woven and inter-related pieces mid-year 2017 would create chaos in the affected programs, like the health insurance exchanges, which are already underway this year. Therefore, there has been speculation that actions under the Order are not likely to be effective until 2018. The question is whether any actions under the Order, which are expressly limited to those that are permissible under the ACA, will mean anything in 2018 when it is almost certain that the ACA will have already been repealed.

Whether substantive or symbolic, clearly the first step in the ACA’s dismantling has been taken and we will be watching very closely as the administration and Congress take many more.

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President Trump Signs Executive Order to Further Deregulation

On January 30th President Trump signed an executive order to curb what his campaign highlighted as burdensome regulations. The executive order requires federal agencies to repeal “at least two” current regulations when implementing one new regulation. The language of the order describes its intention “to manage the costs associated with governmental imposition of private expenditures required to comply with Federal regulations.” This coincides with President Trump’s belief that federal regulations have hampered American business’ ability to grow and prosper.

The order only applies to executive branch departments and agencies, excluding independent agencies such as the Federal Communications Commission and the Federal Trade Commission. Regulations regarding the “military, national security and foreign affair functions” are exempt and the Office of Management and Budget (OMB) Director can waive the rule in certain instances at his discretion. Rep. Mick Mulvaney is awaiting his Senate confirmation vote for the position. The order will also create a process to set an annual cap on the cost of new regulations. For fiscal 2017 the cap will be zero sum, with new regulations required to be offset by the removal of existing rules.

This order follows a memorandum freezing regulations from the White House shortly after Trump’s oath of office on January 20th and is considered standard by incoming administrations. The memo from Chief of Staff Reince Priebus details the abilities of the OMB director to waive the order for emergency “situations or other urgent circumstances” and requests that no new regulations be sent to the Federal Register and to those already sent to be withdrawn. The memo postpones regulations that have been published by 60 days with exceptions. OMB’s acting director Mark Sandy also released a memo for agency heads outlining similar guidelines on January 24th.

The order, which is clear in its intent, creates a fair number of questions. It is unclear what the implications would be for sectors that have few regulations, such as cybersecurity. In that sector, the government is struggling to keep up with emerging technologies and the threat of intrusions. Government policy experts have said the rule will make it difficult to enact congressional legislation on a wide range of topics and will make the time-consuming process for regulations to undergo even longer. It would likely complicate the process of repealing and replacing of the Affordable Care Act which was greatly enacted through Department of Health and Human Services regulations.

What is clear is that this order has an upward battle. The complications of the already rigorous regulation process and the vaguely described waiver authority of the OMB director are all elements of uncertainty. Moreover, few, seemingly only those in the White House, know how this policy will actually be carried out. Meeting the objective of decreasing regulations will be more difficult than simply signing an executive order and will require much more additional guidance.

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Speaker Ryan Address Congressional Republican Agenda with Politico

On January 27th, Speaker of the House Paul Ryan sat down with Politico Playbook to outline Congressional Republicans’ policy agenda. Following the Republican retreat in Philadelphia, which featured a speech from the new president, and a flurry of executive orders, Paul Ryan launched what he called an “ambitious” 20- day agenda. The agenda which was presented to Republicans at the retreat contains deadline specific issues, such as the April CR expiration and policy promises like repealing and replacing Obamacare. Ryan did say they anticipated a funding supplement to come from the White House for the Southern border wall, which he referred to as an immediate concern of national security.

Tax reform was another hot topic, which during the discussion Ryan tied back to a retooling of U.S. trade policies citing the border adjustment tax as a possible offset. The Speaker also addressed Republicans’ plan for repealing and replacing Obamacare, which he stated the legislation should be accomplished within 2017, but that the policy enacting would take years to enact. But he stressed the importance of repealing and replacing quickly citing it as a “rescue mission.”

Speaker Ryan touched on the vacant Supreme Court seat saying he expects a Supreme Court pick to be announced this coming week and that congressional Republicans “like [Trump’s] list.” When asked about Vice President Mike Pence’s new role, Speaker Ryan expressed confidence in Pence, anticipating him be a strong Vice President because his knowledge of the system and his prior history with many members brings expertise to the White House.

The topic of torture and Russian sanctions was also queried. Speaker Ryan reiterated that torture is illegal and not a flexible standard for the United States. He also supported Senator John McCain who called for the Russian sanctions to remain, calling the sanctions “overdue,” despite Trump floating possible easing. In a bipartisan note, the Speaker did state that criminal justice reform is on the agenda and would be done with action from both sides to the aisle.

When asked by an audience member about the number of executive actions being directed form the White House, Ryan sresponded that they were intended to remove “bad” polices installed by the Obama Administration. He stated he expects those actions would be accompanied by congressional action and highlighted the eventual action Congress would do under the Congressional Review Act. Overall, Speaker Ryan put forward what he expects Congress to move on in the next 200 days, which will include several of President Trump’s campaign promises and an ambitious list of policy goals for Republicans.

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DOT Releases Proposed Rule on Auto Communications Technology

The Department of Transportation (DOT) released a proposed rule on Tuesday mandating Vehicle to Vehicle (V2V) communication technology be enabled in new cars and trucks by 2023. The rule intends to combat driving hazards by allowing cars to talk to each other and alerting drivers of potential hazards on the roads. The DOT stressed the value V2V communications would add in terms of safety mechanisms for passenger vehicles.  Already questions have been raised on how the mandate would be implemented with questions still open on how connected cars will share already limited spectrum.

Automakers have already discussed the need for flexible regulations for autonomous cars, but this proposed rule would impact their commercial production in a much more profound manner.  In the release of the proposed rule,  the Department of Transportation referred to V2V technology as a prerequisite for the development of a ”fully autonomous vehicle fleet.” Auto makers have made no clear indications that this is a mutually held belief.  Automakers want regulations to allow the freedom to invocate and include safety features in production vehicles that not only provide a high level of safety but are cost effective and commercially viable.  Their public comments on the proposed rule will likely present a clearer picture of what the auto industry foresees for the inclusion of V2V in autonomous vehicles and will simultaneously provide insight into future safety systems.  The public comment period is open for 90 days, closing on March 13th, 2017.


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For many businesses, nothing seems more remote than the maneuvering of Beltway insiders. But what happens in Washington and in state and local government is critically important to your company and your industry. With government more involved in business than at any time since the 1930s, organizations that can negotiate the government labyrinth of politics, policy, and process will come out on top.
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