Federal Issues Update
April 15, 2016
Following a two-week spring recess, House lawmakers returned to Washington, D.C. on April 12 to begin a decisive stretch in the fiscal year 2017 appropriations cycle. Amid internal Republican disputes over spending levels, House GOP leaders appear likely to abandon efforts to adopt a formal budget resolution. In the absence of a final resolution, and in accordance with modern budgeting rules, the chamber may need to wait until May 15 to bring spending bills to the House floor. Meanwhile, the House Appropriations Committee has decided to forge ahead with its work using the discretionary spending levels approved in last fall’s budget agreement.
Across Capitol Hill, the Senate path appears to be more straightforward. The upper chamber will bypass the budget resolution process and appropriators will move forward with legislation that reflect the topline spending levels agreed to in the aforementioned budget deal – $518.5 billion for domestic programs and $551 billion for defense spending.
While it is unclear when and if the full House will consider their fiscal year 2017 spending bills, Senate Majority Leader Mitch McConnell (R-KY) has pledged to devote significant floor time to appropriations. However, with this year’s extended summer recess, which will span a full seven weeks from mid-July to early September, Congress will likely need to pass a continuing resolution to avoid a government shutdown when funding expires on October 1.
Energy and Water Development Appropriations
On April 13, the House Energy and Water (E&W) Development Appropriations Subcommittee approved its draft fiscal year 2017 spending legislation. The bill, which funds the Department of Energy, the U.S. Army Corps of Engineers, the Bureau of Reclamation, and several independent agencies, was cleared on a voice vote.
All told, the measure proposes to spend $37.4 billion, or $259 million above the fiscal year 2016 enacted level. While Army Corps programs would see an increase of $100 million, funding for the Bureau of Reclamation would be reduced by $131 million.
It should be noted that House appropriators included in the draft bill several provisions designed to send additional water deliveries to California’s Central Valley. The language – which largely tracks drought legislation passed by the House in 2015 (HR 2898) – would require the Department of the Interior to increase Delta pumping under certain conditions. The provisions are strongly supported by Central Valley Republicans but have drawn fire from members of the state’s Democratic congressional delegation.
The House bill also includes several policy riders, including language that would prohibit the Army Corps from spending any funds to implement the Obama administration’s controversial “Waters of the United States” (WOTUS) regulation. The rule, which was finalized by the Environmental Protection Agency and the Corps in 2015, has been tied up in the courts and is awaiting further legal action. The House bill also includes language that would prevent any changes to the definition of “fill material” for purposes of the Clean Water Act (CWA) and restricts application of the law in certain agricultural areas, such as ponds and irrigation ditches.
Looking ahead, the full House Appropriations Committee has scheduled a markup of the E&W bill for April 19.
For its part, the Senate Appropriations Committee approved its E&W spending measure (S 2804) on Thursday, April 14. The $37.5 billion package cleared the panel on a 30-0 vote and is expected to be considered on the floor sometime next week.
Unlike the House measure, the Senate legislation includes $100 million for various Western drought-relief programs and activities. Championed by Senator Dianne Feinstein (D-CA), the funds would build upon the $100 million that was included for drought-response programs as part of the fiscal year 2016 omnibus spending law.
In another break from the House legislation, S 2804 does not include legislative language that would mandate increased Delta pumping levels. However, the Committee Report accompanying the bill (S Rept. 114-236) directs the Bureau of Reclamation and the Department of the Interior to use all of the flexibility at their disposal to mitigate the impacts of the drought. Specifically, the Report directs Reclamation to work with the U.S. Fish and Wildlife Service, the National Marine Fisheries Service, and relevant state agencies to undertake comprehensive, real-time monitoring of drought conditions and their impact on endangered species and rely upon the best available science when managing export pumping rates. The Report also directs Reclamation to work with the U.S. Department of Agriculture to expand efforts to supply small rural communities with water during the current drought.
Finally, the Senate bill would prohibit the Corps from making any changes to the definition of “fill material” and “discharge of fill material” for the purposes of the CWA; the legislation does not, however, include language preventing the Agency from implementing its WOTUS rule. Senator John Hoeven (R-ND), who withdrew an amendment to defund any activities related to WOTUS, has nevertheless indicated that he will offer the proposal on the floor of the Senate.
Military Construction – Veterans Affairs Appropriations
On April 13, the House Appropriations Committee approved its fiscal year 2017 Military Construction – Veterans Affairs spending bill, which is typically the least controversial of the 12 annual appropriations measures. The legislation would provide $81.6 billion in discretionary funding to house, train, and equip military personnel, provide housing and services to military families, and help maintain base infrastructure. The legislation also funds veterans’ benefits and programs. It should be noted that the proposed funding amount is nearly $1.8 billion above the fiscal year 2016 enacted level. The bill also includes $172 million in funding from the Overseas Contingencies Operations (OCO) account, a war fund that is not subject to the discretionary spending caps.
While Democrats on the committee urged the panel to attach emergency supplemental funding to help combat the Zika virus, Chairman Harold Rogers (R-KY) opposed the effort, arguing that the Obama administration had not supplied the committee with enough information about where and how the money would be spent. Instead, Rogers announced that the committee would draft a separate supplemental for Zika, once the necessary information was supplied to the panel.
In the Senate, the Appropriations Committee on April 14 unanimously approved its Military Construction bill. The legislation includes $83 billion in discretionary funding, a $3.1 billion boost from the fiscal year 2016 enacted level. In addition, Senate appropriators adopted an amendment that would allow VA doctors to recommend medical marijuana to veterans in states where it is legal and prohibit funds in the bill from being used to interfere with veterans participating in state-approved medical marijuana programs.
The majority of the Senate’s floor time this week was devoted to consideration of a Federal Aviation Administration (FAA) reauthorization bill (S 2658). The $33.1 billion measure would extend the FAA’s authorization for an additional 15 months, carrying it through the end of fiscal year 2017. The current aviation patch is slated to expire on July 15.
Of particular interest to counties, the Senate bill would increase funding for the Airport Improvement Program (AIP) by $400 million to an annual amount of $3.75 billion. AIP provides grants to public agencies for the planning and development of public-use airports. The legislation also would fund the Essential Air Services (EAS) program – which provides subsidies for air service to small and remote airports – at current levels. In addition, the measure would provide $10 million for the Small Community Air Service Development Program (SCASDP), which is $4 million more than the currently authorized level. Similar to EAS, SCASDP grants are designed to help rural counties address issues involving air service and airfare.
It should be noted that lawmakers on the Senate Finance Committee were hoping to use the FAA bill as a vehicle to advance a variety of tax-related add-ons. For example, one provision would have provided a five-year extension of tax credits for renewable energy, including fuel cells, geothermal, and wind. The proposed package also included incentives for carbon dioxide sequestration projects, as well as a number of tax breaks for brewers of beer, wine, and spirits. After facing criticism from both parties, Senate leaders agreed to move forward with a “clean” bill instead. The chamber is expected to wrap up its work on the bill next week.
In the House, a six-year FAA renewal bill (HR 4441) is currently awaiting floor action. Entitled the Aviation Innovation, Reform, and Reauthorization (AIRR) Act, the legislation includes a number of major aviation reforms, including a controversial proposal to reform the air traffic control (ATC) system by removing it from the FAA and placing it in a federally-chartered non-profit corporation. The proposal faces stiff opposition from congressional Democrats, as well as some Republican members of the Appropriations and Ways and Means Committees. Accordingly, it remains unclear if the AIRR Act will advance to the floor of the lower chamber.
It should be noted that Representative Grace Napolitano (D-CA) is expected to offer a floor amendment that would clarify that local sales tax measures of general application are not subject to provisions of federal law that require the proceeds of certain taxes to be spent for aviation purposes. The amendment, which was initially offered during the Transportation & Infrastructure Committee’s consideration of the FAA rewrite, was defeated on a voice vote and subsequently withdrawn prior to a recorded vote.
The impetus for the Napolitano amendment is a 2014 FAA ruling (79 FR 66282) that requires States and local governments to spend the proceeds of any aviation-related tax – those derived from excise taxes and local sales taxes – on airport uses only. According to the FAA, “the agency interpreted the provisions of Sections 47107(b) and 47133 [49 USC] to apply to any state or local tax on aviation fuel, whether the tax was specifically targeted at aviation fuel or was a general sales tax on products that included aviation fuel without exemption.” Incidentally, the Conference Report to the Airport and Airway Improvement Act (PL 100-223), which houses the statute in question, states that the requirement was “intended to apply to local fuel taxes only, and not to other taxes imposed by local governments, or to state taxes” (Conf. Rept. No. 484, 100th Cong., 1st Sess. 1987 accompanying PL 100-223).
It is estimated that the FAA’s policy amendment will mean a loss of over $100 million for the State of California and its local governments. Nationwide, a recent study suggests that state and local governments will lose roughly $190 million a year under the FAA rule change. Furthermore, because sales taxes on aviation fuel are not segregated from other taxable sources, state and local governments will need to implement an extensive new tracking system(s) in order to comply with the FAA’s policy.