The ADS Ventures Newsletter - 2016 Wrap and 2017 Preview
The Incoming Congress


Friends and Colleagues,

As we contemplate the policy priorities and direction of the incomi ng Trump Administration and the Republican-controlled Congress, there is  one major  driver of policy that has been ignored by most commentators. In addition  to controlling both legislative branches, the Republicans have control of 32 of the total 50 state legislatures in the country and 33 of the 50 Governor's offices. In  Washington, the Republicans hold a 241-194 majority in the House and a 52-48 majority in the Senate. This represents the largest Republican majority since 1928.
 
Because of Senate rules, precedent, and protocol, a 60-vote majority is typically required to move legislation (the exception to this is so-called reconciliation, which has been used more aggressively over the last 20+ years to pass fiscal and tax measures; for instance, parts of the ACA were passed using reconciliation). The Senate will clearly be the policy battlefront over the next 4 years. The Republican Majority in the Senate is hugely more moderate than the House Majority, and several Republican Members of the Senate, including Sens. Collins (Maine), Flake (Arizona) and Murkowski (Alaska) have historically been open to supporting various Democratic initiatives on environment, immigration, civil rights and liberties, and spending priorities. The Republican Majority also includes a number of members, including Sens. Graham (South Carolina), McCain (Arizona), and Grassley (Iowa), who have a history of independence and a willingness to break with the Senate Leadership and their Party on specific issues.
 
In addition to facing the deepest electoral deficit in almost a century, the Democratic Senate Caucus faces the most daunting prospects for the reelection of their Members in the last 50+ years. There are 25 Democratic Senators who are up for reelection in 2018. Of those, 10 represent states that were carried by Trump, including some of the deepest red states (West Virginia, North Dakota, Montana, Indiana, Missouri). The Trump transition has already targeted Senator Heitkamp (ND) and Senator Manchin (WV) by beginning conversations to recruit both of them to a Trump cabinet. If either of these Senators accept a cabinet position, they will be immediately replaced by an appointed Republican Senator, and the Democrats will have the longest of long odds in retaining either seat. On the Republican side, only 8 Senators are up for reelection, and in only two of those states is there any remotely plausible scenario for a Democrat to capture the seat.
 
Since the election, the Democratic Members of Congress, with few exceptions (Senator Warren, most notably), have been extraordinarily silent and muted in their criticism of the Trump transition. By contrast, Republican Senators have been surprisingly vocal on the record in their opposition to various Cabinet nominees and to many of the Trump policy priorities. Off the record, a broad spectrum of Republican members have expressed dismay to the media about some of Trump's national security nominees, his embrace of higher deficit spending, his trade policies, his aggressive intervention in specific corporate decisions, his frequent tweets, his disinterest in intelligence briefings, his penchant for nominating old billionaires to high-level government positions, and his continuing to invest time, energy and prestige in settling old scores (Mitt Romney).
 
On the policy front, there seems to be 60+ votes (with deep disagreement on details) for the following policy initiatives:
  1. A significant increase in defense spending;
  2. A major infrastructure investment;
  3. Major increases in funding for biomedical research;
  4. An aggressive approach to regulatory reduction, likely along the system adopted in the UK in 2010, a two regulations eliminated for one new regulation plan; and
  5. Major investments in veterans' healthcare and services.
In our history, we have never witnessed an incoming Presidential Administration like this one. Exit polling indicates that the American Electorate was looking for a strong leader and deep change, although the nature and direction of that change was not clearly articulated. The election was a clear repudiation of our society and government's deference to evidence, data and scientific expertise. The post-World War II development of elite institutions, professions, and concepts of conflict of interest has been challenged and questioned in a way that has not happened before. Nowhere is this clearer than in the evolving US relationship with Russia. No issue has more singularly defined the Republican Party than opposition to Russian communism after the Russian Revolution, Russian aggression after World War II, Russian military buildup, and promotion of geopolitical instability during the Cold War and post-Cold War period. Trump's embrace of Putin and rejection of the overwhelming consensus of the intelligence community relative to Russian intentions has created a profoundly troubling dilemma for Republicans in Congress. While Presidents have withdrawn controversial Cabinet nominees, no Cabinet nominee has been rejected by the Senate since John Tower's nomination to be Secretary of Defense in 1989. ExxonMobil CEO Rex Tillerson's nomination to be Secretary of State is likely to be the most contentious Cabinet confirmation since John Tower's rejection. Trump seems to have a blind spot relative to Russia. Only a handful of Republicans (few of them with expertise in foreign affairs) have endorsed Trump's approach to Russia. The Republican foreign policy establishment and virtually all of the Republican Senators who are most involved in foreign policy are deeply troubled by Trump's actions and approach to Russia. This issue is likely to color and define the first 100 days of a Trump Administration and beyond.
 
On other policy, Trump appears prepared to make an all-out assault on the Obama policies and priorities on climate change and healthcare. Trump has now indicated his nominees for the key policymaking positions relative to climate change. Each of them has a long record of activism, litigation and rhetoric strongly opposed to the concept of man-induced climate change and the need to address climate change. On healthcare, the ACA will almost assuredly be repealed in whole or in large part with no plan to replace it. There is no consensus in the Republican caucus of either the House or the Senate on how far to go in expanding healthcare coverage or reducing healthcare costs. It is not yet clear how this uncertainty will affect healthcare markets or healthcare institutions.
 
The Trump Presidency is like nothing we have ever seen in our history. In the past, Presidents have operated within the guardrails of bipartisan consensus around procedures, protocol, national interest and separation of public and private spheres. Trump is challenging all of this, and many of his actions (job retention deal with Carrier in Indianapolis) are hugely popular. Other actions challenge historic core Republican beliefs and seem highly likely to precipitate deep intra-Party divisions. There will be plenty of areas for Democrats to find common cause with Trump, but many of the Trump policies will be vigorously resisted by virtually all Democrats, and the biggest question mark is how many of the more moderate Members of the Republican caucus will join Democrats in resisting Trump policies. The one prediction we can make with certainty is that Trump will remain "Entertainer-in-Chief," and the battles will be highly visible, highly personal, and intensely fought on both sides.

Chet


The Trump Administration - Cabinet Update

Since the November 8 election, President-elect Trump and his team have been busy meeting with potential Cabinet members and other high-level political appointees. As we near Inauguration Day, the President-Elect is close to filling out his cabinet, leaving only the Secretaries of Agriculture and Veterans Affairs to be nominated. Below is a list of those nominations that President-elect Trump has announced.
  • Secretary of State: Mr. Trump has selected current Chairman/CEO of Exxon Mobil, Rex Tillerson, to serve as the nation's top diplomat. Tillerson, who will hit the company's mandatory retirement age in March, has drawn sharp criticism, including from Republican Senators, for his ties to Russian President Vladimir Putin. Former Secretary of State Condoleeza Rice and former Defense Secretary Robert Gates are among early endorsers of the Tillerson selection, although their firm, RiceHadleyGates LLC has counted Exxon Mobil as a client since 2011.
  • Secretary of Defense: Mr. Trump has selected retired Marine Corps General James Mattis to head the DoD. Mattis is a former head of United States Central Command and a decorated veteran of the Persian Gulf, Afghanistan, and Iraq Wars. ADS retains as a Senior Advisor Gen. David McKiernan (Ret.), a former Commander of all US and International Security Assistance Force (ISAF) troops in Afghanistan and a former colleague of Gen. Mattis. Below, Gen. McKiernan shares his thoughts on General Mattis' nomination and anticipated leadership:

"General (Ret.) Mattis is a highly-regarded leader within the military, across all services, whose straight-talking, no nonsense style will certainly challenge the "inside the Beltway" bureaucracy in acquisition, joint training and doctrine, and manning, to name a few areas of emphasis. The close relationship he has with General Dunford, the Chairman of the Joint Chiefs of Staff, will certainly result in a unified view on defense issues. While Gen. Mattis' "Mad Dog" moniker reflects the colorful command style he demonstrated with his Marines, I believe he will be a measured, thoughtful advisor to the President and avoid the limelight that invariably accompanies the position. Anticipate well-reasoned positions on the use of military force, a team player style, some long-overdue overhauls in the Office of the Secretary of Defense, and very solid relationships with global defense entities."

  • Attorney General: As the nation's top law enforcement official, Mr. Trump has selected Sen. Jeff Sessions, R-AL. The pick has been hailed by those in favor of tough immigration enforcement, as Sessions would be in charge of carrying out much of the Trump anti-illegal immigration agenda. Sessions, an opponent of criminal justice reform, also melds with Trump's campaign promise that he was the "law and order" candidate. Sessions' failed 1986 nomination to the federal bench, and the corresponding allegations of racist comments and actions, could haunt his nomination in the Senate.
  • Secretary of the Treasury: Mr. Trump has been widely reported to have selected Steven Mnuchin, a former Goldman Sachs executive who went on to have a lucrative career as a Hollywood producer. Mr. Mnuchin would be responsible for shepherding the Administration's tax policy and in interviews has promised the largest overhaul of the tax code since the Ronald Reagan presidency. In a slight break from Mr. Trump, Mr. Mnuchin has also praised Janet Yellen, two years into her four year term as Chairwoman of the Federal Reserve.
  • Secretary of Health and Human Services: Mr. Trump has selected Rep. Tom Price, R-GA-6, to lead his Administration's efforts to repeal the Affordable Care Act, more commonly known as Obamacare. Rep. Price, a physician, has been among the House's most vocal opponents of the law, saying it interferes with the ability of both patients and doctors to make medical decisions.
    • Administrator of the Centers for Medicare & Medicaid Services (CMS): Mr. Trump has selected Seema Verma, a former advisor to Indiana Governor (and Vice President-elect) Mike Pence, to lead CMS. Verma, who currently runs a national health policy consulting company, was tapped by former Indiana Governor Mitch Daniels to design the state's private sector-focused Medicaid expansion, called Healthy Indiana Plan (HIP). Verma later returned during Gov. Pence's Administration to design HIP 2.0. The program garnered bipartisan praise in the state as a private sector alternative to ACA Medicaid expansion. Together, Price and Verma have been characterized as a "dream team" to help transform the US healthcare system under the Trump Administration.
  • Secretary of Homeland Security: Mr. Trump chose another retired Marine General, John F. Kelly, to serve as Secretary of Homeland Security. Kelly brings strong credentials on counter-narcotics and immigration issues, given his time as head of the U.S. Southern Command, which oversees the military's response to regional issues in Central and South America. He appears likely to be confirmed by the Senate, although he will face questions about his lack of law enforcement bona fides.
  • Secretary of Transportation: Elaine Chao, who previously served as Secretary of Labor through the entire George W. Bush Administration, has been selected by Mr. Trump to serve as Secretary of Transportation. In that role, she will be tasked with implementing Trump's proposed $1 trillion infrastructure plan, which the President-elect promises will spur economic growth and create jobs. A Taiwanese immigrant whose parents fled mainland China, Ms. Chao is also notably the wife of Senate Majority Leader Mitch McConnell, R-KY.
  • Secretary of Education: Mr. Trump has announced the selection of Betsy DeVos, a former Michigan Republican Party Chairwoman and a prominent education activist. Ms. DeVos has for many years supported efforts to increase school choice nationwide, believing that a partial privatization of the education system spurs innovation. Ms. DeVos is a vocal opponent of both Common Core and teacher's unions, and her selection was hailed by many education-focused Republicans, including former Florida Gov. Jeb Bush.
  • Secretary of Commerce: Mr. Trump has reportedly selected Wilbur Ross, a billionaire investor who has specialized in restructuring companies in troubled industries like steel, textiles, auto parts, and coal, as his nominee for Secretary of Commerce. In that role, Ross would be the federal government's lead liaison to the business community and, in conjunction with the United States Trade Representative (also yet to be announced), would seek to implement Mr. Trump's more assertive trade policy.
  • Secretary of Housing and Urban Development: Despite the nominee's comments to the contrary, Mr. Trump has moved forward with his widely-rumored selection of Ben Carson as Housing and Urban Development Secretary. The retired neurosurgeon and former Republican presidential candidate lacks obvious credentials to run the agency, although on the campaign trail he often recounted his troubled childhood growing up in inner cities. In recent years, he has criticized public assistance programs for creating government dependency and appears a likely choice to roll back the Obama Administration's loosening of federal public housing eligibility guidelines.
  • Secretary of Labor: Mr. Trump is likely to nominate Andrew Puzder, the CEO of CKE Restaurants, which owns fast-food brands such as Hardee's and Carl's Jr. Puzder has publicly opposed the Obama Administration's controversial overtime rule, argued against raising the minimum wage, and publicly criticized the Affordable Care Act. Business interests appear likely to strongly support Puzder's nomination, given his long record of his thoughts on job creation being spurred by decreasing regulation.
  • Secretary of Energy: Mr. Trump has reportedly selected former Texas Gov. Rick Perry to lead the Department of Energy. Perry, another former Republican Presidential candidate, famously could not remember that the Department of Energy was the third Cabinet agency he hoped to abolish during a disastrous 2011 Republican Presidential debate. Perry hails from an energy-rich state and has aggressively voiced his support for an "all of the above" energy policy, including advocating for investments in alternative energies. Perry's nomination, however, breaks with a recent preference for scientists with a physics background to lead the department, which plays an important role in nuclear energy development and managing the nation's nuclear weapons arsenal.
  • White House Chief of Staff: As White House Chief of Staff, Mr. Trump has selected Reince Priebus, currently the Chairman of the Republican National Committee. Mr. Priebus has never held elected office but has deep ties to the Republican establishment, including fellow Wisconsin native House Speaker Paul Ryan, R-WI-1. Priebus' selection was overshadowed by the controversial selection of right-wing media figure Steve Bannon as a senior counselor, but Priebus promises to hold significant power as a top advisor to a President-elect who has not demonstrated an intense focus on policy specifics.
  • Ambassador to the United Nations: Mr. Trump selected South Carolina Gov. Nikki Haley to serve in the high-profile role of UN Secretary. A frequent critic of Mr. Trump's, Gov. Haley earned plaudits last year for her deft handling of the controversy surrounding the Confederate Flag display at the South Carolina State House. The youngest current Governor in the United States, Gov. Haley is also the second Indian-American to run a state and has been described as a strong supporter of Israel, a key litmus test for Republicans, particularly when it comes to the UN.
  • National Security Advisor: Michael Flynn, a retired Army general and former Defense Intelligence Agency (DIA) director, has been selected for the position of National Security Advisor (NSA), one of the President's top foreign policy advisors. Although not a Cabinet position, the National Security Advisor often serves an important role in the White House to interpret advice coming from the Secretaries of Defense and State, as well as other sources, such as the Chairman of the Joint Chiefs of Staff. Gen. Flynn was an early supporter of Mr. Trump during the campaign.
  • Director of the Central Intelligence Agency (CIA): As CIA Director, Mr. Trump selected Rep. Mike Pompeo, R-KS-4, a member of the House Intelligence Committee and a former Army officer. Rep. Pompeo was seen by some as a surprisingly partisan pick to lead an agency that, in theory at least, should be above politics, but some prominent Democrats acknowledged Rep. Pompeo's work ethic and qualifications.


Stay tuned as Mr. Trump's selections are called to Capitol Hill for what promise to be extremely spirited confirmation hearings.


 
Lame Duck Update: Continuing Resolution

During the lame duck session, lawmakers faced a December 9 th  deadline to keep the federal government funded. There was speculation that the 11 remaining appropriations bills could move in some fashion before the conclusion of the Obama administration; however, at the behest of the incoming Trump administration and prior to the Thanksgiving break, Republican congressional leadership signaled that appropriations efforts would be refocused on a Continuing Resolution (CR) at the current rate of funding to extend the federal government operations. Punting on final spending decisions into the next calendar year provides the Trump administration a final say on how Fiscal Year 2017 money will be allocated. Accordingly, without much fanfare, Congress passed and President Obama signed a CR that will run through April 28 th .
 
The CR maintains the current budget cap level of $1.07 trillion that was put in place by the Budget Control Act of 2011. A few specific parts of the CR that we'd like to highlight are funding for Overseas Contingency Operations (OCO), natural disaster relief, drinking water, and the 21 st  Century Cures Act.
 
The measure provides $5.8 billion in OCO funding for the Department of Defense (DoD) and $4.8 billion OCO funding for the State Department. Of DoD's OCO allocation, $4.33 billion will be going towards Operations and Maintenance and $81.7 million for Research, Development, Test, and Evaluation. The CR also includes a provision that creates an expedited process for the Senate to consider a waiver for General James Mattis to serve as Secretary of Defense. There is currently a legal requirement that prohibits former members of the military from serving as Secretary of Defense if they have been separated from the military for less than seven years. General Mattis retired in 2013 at the top post of US Central Command.
 
In the wake of recent natural disasters, such as Hurricane Matthew and floods in Louisiana, West Virginia and Texas, the bill contains $4.1 billion in emergency disaster assistance. Of that amount, $1.81 billion is directed for Community Development Block Grants to support state rebuilding efforts and $1.025 billion for the Army Corps of Engineers for flood and coastal storm protection projects and dredging.
 
Regarding drinking water, the measure provides $170 million in aid for various programs to address lead contamination in the Flint, Michigan water supply. The funds are designed for infrastructure improvement grants, lead poisoning prevention care, and a lead exposure registry.
 
Lastly, the CR provides $872 million FY17 money for the 21 st  Century Cures Act. This figures includes $20 million for the Food and Drug Administration Innovation account, $352 million for the National Institutes of Health Innovation account, which includes the Precision Medicine and the "Cancer Moonshot initiatives, and $500 million for states to respond to the opioid abuse crisis.


The National Defense Authorization Act

Last week, as Congress made its final legislative push for the session, the House and Senate released and passed its conferenced version of the FY17 National Defense Authorization Act (NDAA), avoiding a late-December showdown. The bill, which faced an uphill battle toward smooth passage in the Spring and Summer as the House and Senate took varying stances on funding, now sets the stage for a military build-up promptly after the Trump Administration takes office. In fact, Vice President-elect Mike Pence has already hinted that within the first 100 days in office, the Administration will send legislation to Congress on a defense supplemental request - something the Obama Administration has been working to avoid.
 
The House and Senate passed NDAA would set the blueprint for a $619 billion Pentagon budget, a $9 billion increase in authorized military spending. The additional funding will be divided between $5.8 billion for supplemental operations in Iraq, Afghanistan, and Europe, and $3.2 billion for Readiness Stabilization Funding - which will stop the drawdown of the military. The legislation also rejects the Pentagon's plan move forward on a Base Realignment and Closure (BRAC) plan, removes the controversial measure requiring women to register for the draft, contains a provision banning the transfer of Guantanamo detainees to U.S soil, and caps the National Security Council's (NSC) staff at 200. However, the final bill did include a five-year reauthorization of the Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) Programs, breathing life into these programs through the end of FY22. Finally, the legislation includes a pay raise for members of the military and acquisition reform that, under the Under Secretary of Defense for Acquisition, Technology & Logistics, separates research & development from acquisition to increase focus on technology and innovation and better deliver superior gear to the Armed Forces.
 
The final NDAA sailed to passage with margins large enough to overcome a veto in both the House and Senate, all but ensuring President Obama signs his final defense policy bill prior to the end of the calendar year.


Massachusetts Update - State Medicaid Waiver Policy Discussion

ADS recently hosted health care policy expert, John McDonough, for a conversation regarding the fate of Massachusetts' Medicaid Waiver and the fate of Obamacare itself under President Trump.
 
McDonough is a Professor of Public Health Practice in the Department of Health Policy & Management at the Harvard T.H. Chan School of Public Health. He played a leading role in both the Massachusetts and national health reform efforts. As a State Representative and later as Executive Director of Health Care for All, the state's leading consumer health advocacy organization, McDonough was one of the main actors in the passage of Romneycare in Massachusetts. He then went on to serve as a Senior Advisor on National Health Reform to Senator Kennedy's Senate Committee on Health, Education, Labor and Pensions, where he worked on the development and passage of the Affordable Care Act.
 
Drawing upon his extensive expertise, McDonough discussed the current Massachusetts 1115A Medicaid Waiver, approved by the Centers for Medicare and Medicaid Services just before the election. This 5-year agreement allows the state to overhaul its existing Medicaid system, transitioning beneficiaries into accountable care organizations. The waiver also promises to generate some $29.2 billion in federal revenue for the state. While the authority for the Waiver will survive even a full repeal of Obamacare, the agreement itself does allow CMS to "withdraw waivers or expenditure authorities at any time it determines that continuing the waivers or expenditure authorities would no longer be in the public interest..." CMS has yet to avail itself of this standard provision. That said, McDonough advised that the state should not underestimate the threat. Even though a whole scale withdrawal is thus far unprecedented, under a President Trump it is not unfathomable.
 
Turning to Obamacare, McDonough explained that repealing the law will be far more challenging than Republicans in Congress and President-elect Trump have recognized. The effort will almost certainly include a delayed repeal, establishing a concrete deadline to install a replacement. While congressional Republicans have coalesced around the need to repeal the controversial law, they have - over the course of 6 years - not reached consensus on a replacement. Moreover, Americans overwhelmingly approve some components of the law - particularly, allowing individuals to remain on a parent's insurance plan until age 26 and guaranteeing coverage despite pre-existing conditions. These provisions cannot easily be severed from the individual mandate to purchase insurance, which increases participation in order to contain costs. Republicans have also evidenced an intent to repeal two additional components of the law specifically installed to control prices - (1) the Cadillac tax, which imposes a 40% excise tax on high-cost employer-sponsored health plans; and (2) the Independent Payment Advisory Board (IPAB) (or so-called "death panels"), which has the authority to make changes to the Medicare program when health care spending exceeds target growth rates.  
 
A repeal of Obamacare will also inevitably affect the states and their relationship with the federal government. House Speaker Paul Ryan's replacement plan would prohibit states that have not already chosen to expand Medicaid coverage to do so, foreclosing options and halting the expansion of coverage. Likewise, states that have expanded Medicaid coverage would gradually lose the enhanced federal reimbursements currently covering the cost of expansion, increasing costs to these states. For his part, President-elect Trump has proposed shifting Medicaid coverage to a block grant model. Proponents advocate that shifting to such a scheme will provide states with additional flexibility to determine how best to cover their residents. In practice, however, McDonough explained that this scheme would likely restrict access to Medicaid coverage and could, in fact, prove more costly as it would necessitate individual conversations and a renegotiation with the Governor of each state.
 
As the country moves toward inauguration day and beyond, ADS intends to host similar conversations related to the uncertain health care and political landscape. We hope that you will join us!


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