U.S. Federal Government Shutdown: Daily Update #3

by Manatt, Phelps & Phillips, LLP
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The Elevator Speech Overview
The government shutdown continues as the stalemate on Capitol Hill shows no signs of abating. Lawmakers, media, and the public are becoming increasingly focused on the upcoming debt ceiling deadline. House Republicans continue to pass small CRs designed for public relations, Democrats continue to try to offer alternatives they know will be ruled out of order, the Senate and President continue to ask the House to pass a “Clean CR” to fund the government and get back to work. Everybody expects Congress to remain in session and unproductive through the weekend.

U.S. House of Representatives
On partisan votes, the House of Representatives passed two more targeted continuing resolutions (CRs) on Thursday that would authorize some funds for certain payments to National Guard members and reservists as well as provide funding for veteran benefit compensation, pension and education assistance. The House has now passed a total of five targeted CRs and sent them to the Senate. With the consideration of each bill, House Democrats have attempted to offer a “Clean CR” as their alternative proposal. A perverse parliamentary game then ensues that is very similar to playing tic-tac-toe, with the outcome being predetermined every time so long as the order of moves is correctly followed. Under the Rules of the House, Democrats may only offer one motion during consideration of these bills. Each time House Democrats attempt to offer a clean CR Republicans in turn make a motion that the amendment is out of order under Rule 16, which says the entire amendment must be germane to the underlying bill. Because the Democratic proposal funds the entire government not just the small portion the Republicans desire, a ruling by the Chair is made that it is, indeed, out of order. Democrats ask that the House vote on the ruling. Republicans then move to table the vote on the ruling and a vote is held on the motion to table. To absolutely nobody’s surprise, the request to vote on the ruling of the Republican Chairman is tabled by on a party line vote. Game over (until they do it again an hour later).

In other developments in the House, a group of New Democrats (fiscally-conservative, centrist democrats) in the House publicly announced their support for a CR that would include a provision to repeal the Affordable Care Act’s medical device tax, an ACA provision which has wide and bipartisan opposition. In a letter to House Speaker John Boehner (R-OH) and House Minority Leader Nancy Pelosi (D-CA), the bipartisan group of signatories suggested offsetting the tax revenue by extending a pension stabilization provision that was part of a transportation authorization bill previously passed by the Senate. Democratic leadership in the House and Senate has expressed opposition to the proposal.

Lawmakers are becoming more vocal about their concern for furloughed workers, particularly members with a high concentration of federal employees in their district. On Wednesday, A bipartisan group of 41 members in the House circulated a letter to colleagues seeking support for a bill (introduced September 30) that would guarantee that furloughed workers received their pay retroactively. The bill, sponsored by Rep. James Moran (D-VA) has 66 Democratic cosponsors and 5 Republican cosponsors. It has not come to the floor yet.

The House is expected to be in session through Saturday and considering a Sunday session as well.

U.S. Senate
Senate Democrats remain opposed to the targeted CRs that have passed in the House, maintaining that the GOP should not be able to pick and choose their favored portions of government to keep open while leaving other portions closed. Senate Democrats and the President observe that under the GOP approach, they will open National Parks while keeping the Environmental Protection Agency that enforces the Clean Air and Clean Water Acts closed; they would open the National Institutes of Health yet keep the Department of Health and Human Services that provides flu shots closed; they would provide Veteran benefit payments, but continue to halt construction or repair of Veteran care facilities, etc. Accordingly, the Senate has not taken up any of the targeted CRs passed by the House.

Debt Ceiling
Members on both sides of the aisle have now turned greater attention to the debt ceiling as a way to force negotiation and reach a deal that would both reopen the government and prevent default. These members include Senate Majority Whip Richard Durbin (D-IL) and House Budget Chairman Paul Ryan (R-WI). Chairman Ryan, who believes the combination of the debt ceiling and CR is “inevitable” has been consulting with other Republicans, including leadership, to craft a list of desired policy concessions for negotiations over the debt limit increase. Issues that may be on the table as “sweeteners” include changes to entitlement programs, a rollback of sequestration cuts, and movement on the Keystone XL pipeline. The discussion at Wednesday night’s White House meeting also briefly considered a similar course of action but the conversation was ineffectual.

In a report released Thursday, the Treasury Department is raising awareness of the potential impact of default and cautions against the potentially significant economic damage that could result from the political brinksmanship over the debt ceiling. As the world’s reserve currency, reverberations from a default by the U.S. federal government – an unprecedented event – would be felt around the world with the exact magnitude unknowable.

Of probably the most significance of all events throughout the day, Speaker John Boehner (R-OH) privately told a group of House Republicans he will not allow a government default to occur and indicated a willingness to bring a measure preventing default to the floor, even if he had to do it without support from the majority of his caucus. Such an action could threaten his Speakership, as he has already had to pass three significant measures this year with only a minority of Republican support: the fiscal cliff deal (the last time the debt ceiling needed to be raised), the Hurricane Sandy relief bill, and the Violence Against Women Act. Speaker Boehner’s spokesman responded to the reports acknowledging that the Speaker is well aware that a default “would be disastrous for our economy… [but that] a ‘clean’ debt hike cannot pass the House.” He repeated their stance that President Obama and the Democrats must enter the discussion prepared to negotiate. The initial reports of Speaker Boehner’s private comments had a slight calming effect on the markets.

Market Reaction to the Shutdown and Threat of Default
Standard & Poor’s Ratings Services (S&P) is estimating that the shutdown will shave about 0.3% from the growth of real GDP in the U.S. for every week the standoff continues. S & P predicts it could diminish fourth quarter GDP by around 1.2% if it lasts as long as the 1996 shutdown (21 days). The S&P’s Deputy Chief Economist predicts that combined with the impending debt ceiling, the shutdown “could significantly hurt business and consumer sentiment, as well as the economy” which is not as strong as in ’96. On Thursday when the stock markets closed, the Dow Jones industrial average, the S&P 500 index, and the Nasdaq Composite Index were all down 136.66 (.90%), 15.21 (.90%), and 40.68 (1.07%) respectively. Measures of investor anxiety are also at their highest point since June.

Capitol Hill Goes on Lockdown
Capitol Hill went on lockdown at approximately 2:20 PM Thursday afternoon when shots were reported outside of the Hart Senate Office Building (near the intersection of 2nd Street NE and Constitution Ave). The “Shelter in Place” order was lifted shortly after 3:00 PM after the suspect was apprehended after a car chase. The incident began when a woman in a vehicle struck a protective barrier. U.S. Capitol Police then fired shots in an effort to stop the car and were eventually successful near the Capitol complex. One Capitol Police officer was injured but is in stable condition. The driver was killed in the incident and the condition of a child in the car is unknown. The woman’s motive is unknown, however, there is no evidence that the incident was terrorist-related.

Today’s Agency Spotlight: Department of Transportation
The Department of Transportation (DOT) is partially shutdown with approximately one-third of its overall workforce furloughed. The furloughs are not distributed across the agency evenly, with approximately 33% of the Federal Aviation Administration (FAA), more than 50% of the Federal Railroad Administration (FRA), and nearly 95% of the Federal Transit Administration (FTA) furloughed; some of the FAA’s Office of Aviation Safety personnel, however, will be recalled to work incrementally over a two-week period. Activities that will continue to operate at the FAA include air traffic control services, airport inspections, hazardous materials safety inspections, and on-call accident investigations. The FRA will continue the continuous inspector presence on railroad property as their absence is considered a safety hazard. The FTA will continue limited functions funded from prior year appropriations, including some Hurricane Sandy related activities.

Suspended activities include the National Highway Traffic Safety Administration’s (NHTSA) defects investigations, vehicle safety activities, and the review of incoming information on possible defects. The FAA has suspended facility security inspections, evaluations, audits and inspections; air traffic performance analysis; the development of NextGen safety standards; routine personnel security background investigations; and law enforcement assistance support. At the FRA, suspended activities include grant and financial assistance activities as well as their intake, processing, and evaluation of grant applications. The FTA will not execute any grants, contracts, purchase orders or other documents obligating funds or reimburse transit agencies for ongoing operations. October is normally a month in which grantees request significant reimbursements so the impact will be felt keenly by small agencies without a lot of cash on hand. For ongoing projects, the FTA staff will cease environmental, legal, civil rights and other reviews essential for advancing projects to the point of obligation. For more information on specific activities, please see the DOT’s Contingency Staffing Plan.

Public Opinion
We continue to watch for meaningful public opinion polling.

Recommended Reading

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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