Congressional Hearing: The Bureau of Consumer Financial Protection’s Unconstitutional Design

House Financial Services Committee

Subcommittee on Oversight and Investigations

March 21st, 2017

Witnesses:

  • The Honorable Theodore Olson, Partner, Gibson, Dunn & Crutcher LLP
  • Professor Saikrishna Prakash, James Monroe Distinguished Professor, University of Virginia School of Law
  • Adam White, Research Fellow, Hoover Institution
  • Brianne Gorod, Chief Counsel, Constitution Accountability Center

On March 21st the House Financial Services’ Subcommittee on Oversight and Investigations held a hearing to discuss the potential constitutional conflicts presented by the structure and mandate of the Consumer Financial Protection Bureau (CFPB.) The controversial subject drew attention from Democrats and Republicans alike, creating a tense environment with often partisan accusations of motive.

Chairwoman Ann Wagner (R-MO) began the hearing by discussing her perceived overreach of the federal government into the private financial decisions of everyday Americans. She continued by stating the unconstitutional manner of the CFPB is leading to abuse, stemming from its unaccountable independence and “arrogant” regulation of entities outside of its scope. Wagner concluded that the President should have the authority to remove the director of the agency to restore the checks and balance the Constitution was founded on. Ranking Member Al Green (D-TX) disagreed with Chairwoman Wagner and declared the hearing unilaterally sided with large financial companies who are regulated by the CFPB. Green was fervent in his disagreement in the panel hosting Theodore Olson, a former U.S. Solicitor General, who is representing PHH Corporation in a pending case against the CFPB. Representative Green spent a considerable amount of his allotted time on this issue, which he stated to be “inappropriate” for Congress to host an attorney involved in pending litigation.

Representative Scott Tipon (R-CO), Vice Chair of the subcommittee, added on to Chairwoman Wagner’s opening statement during his allotted opening time. He cited the CFPB’s fifty rules and enforcements as clear evidence of its incentive to act with impunity. He closed with a statement that the CFPB requires reforms to return the agency to its original mandate.

Three of the four witness began their opening statements by sharing their opinion that the CFPB’s structure is unconstitutional. Theodore Olson, who made clear he was testifying in a personal capacity, stated that the Constitution’s framers did not want power to be solely focused into one branch of government and thus formed the three branches. Currently, as written by the legislation that created the CFPB, the president is unable to remove the director unless there is due cause, which Mr. Olson inferred was stripping the president of his executive authority. He continued saying the CFPB’s power is so concentrated and unaccountable that it violates the intent of the framers and thus the Constitution.

Professor Saikrishna Prakash of the University of Virginia echoed Mr. Olson in his belief that the unaccountable nature of the CFPB director is contradictory to the president’s removal powers instilled in the checks and balances of the American system. Adam White of the Hoover Institution was the third witness to share his case against the CFPB’s constitutional status. His testimony focused primarily on the inability of Congress to use the power of the purse over the agency. He also urge lawmakers to enact a legislative fix and to not wait for the courts to complete litigation.

Brianne Gorod of the Constitutional Accountability Center was the only witness to argue in favor of the CFPB. Her argument rested on the structure being similar to existing agencies and that presidential removal power is not all consuming. She argued that if there were great abuses in the Bureau then the president would have the power to remove the director for cause and the independence of the Bureau from the president and legislature is a check and balance itself.

Chairwoman Wagner began the question portion of the hearing by stating her intention to support a legislative solution to the unconstitutional status of the CFPB but that she was also interested in the expertise of the panel on the issue. She questioned the witnesses on whether the president has the authority to remove the director at this moment. Mr. Olson responded that the Office of Legal Counsel had stated the responsibility of the President to enforce the constitution and his belief that the “president has the power to remove the director.” Professor Prakash and Mr. White agreed.

Throughout the hearing various congressional Republican Members made their opinion of the CFPB’s unconstitutional nature clear.  They inquired of the witness why the CFPB presented a conflict to constitutional law and referred to their intention to make changes to rule in the overreach the agency had imposed. Democratic Members repeated the statistics of the positive enforcing cases the agency has done in its efforts to protect consumers. Many repeated the argument that the only parties wishing to see the agency dismantled are large banks and companies who perceive the agency as a threat.

The Chairman of the full House Financial Services Committee, Jeb Hensarling (R-TX), reaffirmed his belief in the CFPB’s unconstitutionality. He cited the D.C. Circuit Court’s ruling that the single director nature of the agency is unconstitutional and inquired of the role of due process in the Bureau’s enforcement. Following Chairman Hensarling’ s appearance the hearing evolved into an exchange regarding the appropriateness of the hearing having Mr. Olson, an attorney who is current in litigation against the CFPB, testify and Ms. Brianne Gorod, who has assisted in an amicus brief in the same case in support of the CFPB. The hearing was adjourned shortly after by Chairwoman Wagner.

 

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Maritime and Infrastructure Federal Update

Legislative highlights from the March 2017 Maritime and Infrastructure Federal Update is below. See the full update here.

Trump’s “Skinny” Budget Targets TIGER Grants, Army Corps of Engineers and Leaves Questions Elsewhere

President Trump released his administration’s budget proposal in which he favored slashing domestic programs to compensate for increased federal funding for military and national security purposes. The DOT would see a 13 percent overall cut from last year’s funding levels, resulting in a budget of $16.2 billion, under the Trump proposal. Among the DOT programs targeted for elimination are the Essential Air Service and Amtrak’s long-distance service.

The proposed budget would also reduce the Army Corps of Engineers’ budget by 17 percent to $5 billion, and the Transportation Investment Generating Economic Recovery (TIGER) grant program, which has provided nearly $4.6 billion in federal funding for port, transit, rail, and road projects since its inception in 2009, would be eliminated entirely. While Republicans have often sought to reduce or cut TIGER grants in the past, Secretary of Transportation Elaine Chao spoke favorably on TIGER grants during her confirmation hearing in January. Senator Susan Collins (R-Maine), the chairman of the Senate transportation appropriations subcommittee, also joined Democrats in pledging to preserve TIGER grants in any upcoming spending bill, signaling a tough road ahead for opponents of the program.

The fate of Federal Emergency Management Agency’s (FEMA) Port Security Grant Program remains unknown, although the budget proposal seeks to eliminate $667 million in FEMA’s state and local grant funding. Similarly, the budget proposal leaves open questions regarding the impact on preference cargoes reserved for U.S.-flag carriers. The proposal would eliminate the McGovern-Dole International Food for Education program but is unclear regarding the potential impact on USAID’s Food for Peace Program. The proposal does purport to allow for “significant funding of humanitarian assistance, including food aid, disaster, and refugee program funding” while proposing significant reductions to USAID and State Department funding.

Congress Takes Lead on Infrastructure Investment

In his first address to Congress last month, President Trump reiterated his campaign promise to make infrastructure investment a top priority for his administration. In the weeks that have followed, Congress and various trade groups throughout Washington held a flurry of events focusing on the various facets of infrastructure spanning from flood response and airport development to transmission lines and rural broadband.

Given the president’s insistence on pursuing major infrastructure investment reform, the method de jure for attracting White House attention is to toss around the term “infrastructure” in any context and see if it sticks. With conflicting messaging coming from the White House and the president’s proposed budget cuts to key agencies such as the Army Corps of Engineers, the outlook for the maritime industry is particularly muddled. Despite efforts by the American Association of Port Authorities (AAPA) and the National Association of Waterfront Employers (NAWE) to promote the industry’s investment and development needs, it remains unclear if their message will be heard.

With the president neglecting to elaborate on his exact idea of what constitutes infrastructure for his investment plan, the burden of determining the parameters of his investment plan falls on Congress. Both the House and the Senate have risen to the challenge, hosting a marathon of infrastructure related hearings that will continue in the coming weeks. While the hearings have covered virtually every manifestation of infrastructure conceivable, repeated themes have begun to emerge with a focus on finding the balance between direct federal spending and the use of public-private partnerships.

The efficacy of public-private partnerships has been questioned by hearing witnesses and Members of Congress alike, including Senate Commerce, Science, and Transportation Committee Chairman John Thune (R-S.D.), due to low viability in rural areas. Support for direct federal funding for infrastructure projects, on the contrary, has been widespread.

The permitting process for infrastructure projects, whether for highway development or electric grid modernization, has also been a persistent topic of contention. Members and panelists have called several times for the federal permitting process to be streamlined into a faster, less burdensome, and more efficient system. In a Senate Commerce hearing, one panelist likened the permitting process to wearing handcuffs during a race, a sentiment that was echoed across a multitude of hearings.

Despite these common themes, the past few weeks on the Hill can only be characterized as chaotic with respect to infrastructure policy. Without further guidance from the president himself, it is unlikely that industry and government leaders will reach a breakthrough in crafting an approach to the president’s one trillion dollar investment proposal. With Congress moving to consider a major tax overhaul, however, it may be awhile before any such guidance comes into existence. Whether the maritime industry, in particular, has sufficient attention from the federal government will therefore likely be revealed during House and Senate hearings on the Coast Guard and maritime transportation programs scheduled in the coming weeks.

Garamendi Seeks to Expand U.S.-Flag Participation in Exports

On February 29, 2017, Congressman John Garamendi (D-Calif.) introduced H.R. 1240, the Energizing American Maritime Act. The bill would require that, as a condition of approving the export of liquefied natural gas (LNG), the Secretary of Energy direct the applicant to transport a certain percentage (15 percent for 2020-2024 and 30 percent for 2025 and beyond) of the exported LNG on U.S.-flag vessels. Additionally, the bill would require the president to impose the same conditions on the export of crude oil. The bill has been referred to the House Subcommittee on Coast Guard and Maritime Transportation. Rep. Garamendi has introduced similar legislation in prior legislative sessions, which has received strong support from U.S. maritime organizations.

Young Re-introduces Maritime Lien Reform Act

On January 3, 2017, Congressman Don Young (R-Ark.) introduced H.R. 234, the Maritime Lien Reform Act. The bill would amend the Commercial Instrument and Maritime Liens Act to restrict the establishment of a maritime lien on state or federal fishing permits. The bill arises out of established case law holding that fishing permits are “essential to the vessel’s navigation, operation, or mission” and should be regarded as an “appurtenance” of the vessel for the purposes of establishing a maritime lien. The bill has been referred to the House Subcommittee on Coast Guard and Maritime Transportation. Similar legislation has been introduced in each legislative session since the first session of the 112th Congress.

Upcoming Hearings

  • The House Committee on Transportation and Infrastructure Subcommittee on Coast Guard and Maritime Transportation will host a rescheduled hearing on “Authorization of Coast Guard and Maritime Transportation Programs” at a to-be-determined date.
  • The House Committee on Transportation and Infrastructure Subcommittee on Highways and Transit will host a rescheduled hearing on “FAST Act Implementation: State and Local Perspectives” at a to-be-determined date.
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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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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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