WCA WASHINGTON BRIEFS SECOND QUARTER 2014

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1 WCA WASHINGTON BRIEFS SECOND QUARTER 2014 The appropriations process took center stage during the second quarter of the year, as lawmakers in the House and Senate devoted considerable time and attention to advancing their respective fiscal year 2015 spending bills. By the Independence Day recess, the House Appropriations Committee had managed to approve ten of the 12 annual funding measures, with a total of five bills cleared by the full House. In the Senate, the Appropriations Committee has passed seven spending measures. Despite the measured progress, a number of factors have complicated the prospects for finalizing the fiscal year 2015 budget. For example, lawmakers in both chambers are attempting to use the appropriations process to block the Obama administration's regulatory agenda. In the lower chamber, Republicans included language in the fiscal year 2015 Energy and Water spending legislation that would prevent the U.S. Army Corps of Engineers from financing any activities ass The controversial proposal would likely significantly expand those waterways that would be subject to federal regulation under the Clean Water Act. It should be noted that the proposed rule, as originally published, was open for public comment until July 21. However, the U.S. Environmental Protection Agency (EPA) and the Corps announced on June 10 that the comment period would be extended until October 20. Across Capitol Hill, the Senate version of the Energy and Water bill was recently shelved after the White House threatened to veto the measure. from an expected amendment from Minority Leader Mitch McConnell (R- KY) that would block EPA's recent carbon standards rule. Looking ahead, less than 30 legislative days remain before the start of the new federal fiscal year. Accordingly, it appears almost certain that Congress will need to approve a short- term continuing resolution (CR) to keep federal programs operating beyond September 30. A CR also could extend federal funding beyond the midterm elections, meaning a lame duck Congress would be responsible for finalizing a new budget deal.

2 Also this past quarter, the Senate approved on a 95 to 3 vote a long- awaited reauthorization of the nation's workforce development law. The House is expected to act on the legislation (HR 803) in early July. The bill, entitled the Workforce Investment and Opportunity Act (WIOA), represents a compromise between a previously passed House bill and a job- training measure that was approved by the Senate Health, Education, Labor and Pensions Committee. Although there were efforts aimed at reducing the local role in the employment and training arena, the compromise legislation preserves local and regional governance while providing additional flexibility in managing funding streams. The legislation also consolidates several WIA programs, while retaining the separate adult and youth employment and training programs and the dislocated worker program. Additionally, the bill would reduce the number of individuals that are required to serve on local workforce boards, but would continue the requirement that a majority of board members hail from the business community. The compromise also allows for up to 20 percent of local board funds to be used for incumbent worker and on- the- job training, which would allow flexibility to meet local needs. Finally, the legislation recognizes the importance of focusing on both in and out- of- school youth who are utilizing career pathways and training in order to attain a high school diploma, recognized postsecondary credentials, and meaningful employment opportunities FEDERAL PRIORITY ISSUES Below is a status report on the issues that the Wisconsin Counties Association identified as its top five federal legislative priorities in MAP- 21 REAUTHORIZATION There was considerable discussion this past quarter regarding ways to address the impending shortfall in the Highway Trust Fund (HTF). In the House, GOP leaders announced a plan to shore up the trust fund by significantly scaling back Saturday postal deliveries. Although the proposal had the endorsement of the U.S. Postal Service, it received a tepid response from rank and file House members and was not well received in the Senate. Republican leaders have since dropped the idea. In the Senate, Finance Committee Chairman Ron Wyden (D- OR) is pushing a plan to raise billions of dollars through an assortment of tax code tweaks to keep the HTF solvent through December 31. Although the committee had scheduled a vote on Wyden's proposal in late June, the chairman postponed the vote after Republicans raised opposition to the plan. According to Chairman Wyden, he will be working with Senate Republicans - as well as with House leaders - to find a mutually agreeable path forward on a short- term HTF fix. 2

3 On the reauthorization front, the Senate Environment and Public Works (EPW) Committee unanimously approved legislation - the MAP- 21 Reauthorization Act (S 2322) - that would renew for six years (through fiscal year 2020) the nation's expiring surface transportation law. The bill, which is cosponsored by EPW Committee Chairwoman Barbara Boxer (D- CA) and other committee leaders, is currently awaiting floor action. The legislation would provide a total of $265 billion for highway programs while continuing the core program structure put into place by MAP- 21. This includes the National Highway Performance Program (NHPP), the Surface Transportation Program (STP), the Highway Safety Improvement Program (HSIP), and the Congestion Mitigation and Air Quality Improvement Program (CMAQ). In addition, the measure would create a new National Freight Program. only reauthorize the highway title of MAP- 21. The Senate Commerce, Science, and Transportation Committee is responsible for provisions related to motor carrier safety; the Banking Committee is in charge of the transit portion of the bill; and, the Finance Committee will face the daunting task of funding the legislation. Among other things, S 2322 would maintain current law's dedicated federal funding stream for off- system bridges. Specifically, the measure would continue to require a State to obligate for local bridge projects not less than 15 percent of the funds that were apportioned to the State under the Highway Bridge Program in fiscal year Should State and local officials determine that the State has inadequate needs to justify the expenditure, the Transportation Secretary could rescind this requirement. The bill also would modify the provisions of current law that trigger mandatory spending on high- risk rural roads. Under MAP- 21, construction and operational improvements on rural roads is one of a number of allowable project areas within HSIP, with mandatory spending triggered if the fatality rate on rural roads in a State increased over the most recent two- year period. Pursuant to S 2322, mandatory spending would be triggered if rural road fatality rates in a state do not decrease over the most recent two- year reporting period and the state's fatality rate exceeds the national rate. In addition, the bill would reduce the amount of funding states would be required to spend on projects that meet the aforementioned criteria (dropping the threshold from 200 percent of 2009 spending to 150 percent). The legislation also includes provisions that would allow states to use innovative financing mechanisms to fund transportation projects. As first introduced, the bill would have maintained the current funding level of $1 billion per year for the Transportation Infrastructure Finance and Innovation Act (TIFIA) program. However, the program's funding was reduced to $750 million via an amendment during committee consideration. TIFIA provides direct loans, loan guarantees, and lines of credit to surface transportation projects at favorable terms to leverage private and other non- federal investment in transportation improvements. 3

4 The measure also would provide states with the ability to use federal highway funding to capitalize State Infrastructure Banks (SIB) and would allow the DOT Secretary to make TIFIA loans to SIBs. The bill also would expand program eligibility to public infrastructure projects in transit- oriented developments. REMOTE SALES TAX House GOP lawmakers this past quarter continued to discuss legislative options for allowing states to require internet and mail- order retailers to collect and remit state and local sales taxes. For his part, House Judiciary Committee Chairman Bob Goodlatte (R- VA), along with other senior Republicans, have pushed back against a Senate- passed internet sales tax bill (S 743). Among other issues, Goodlatte has expressed concern whether smaller businesses could face unfair demands from out- of- state tax collectors with no legal or political recourse. At this point, it is unclear when the committee will take action on its own proposal. In a related development, the House Judiciary Committee approved a bill - the Permanent Internet Tax Freedom Act (HR 3086) - that would permanently prohibit state and local governments from taxing Internet access. The current moratorium is set to expire on November 1, During committee consideration, Ranking Member John Conyers (D- MI) offered an amendment that would limit the moratorium to four years, as opposed to permanently extending it. However, the committee rejected the Conyers amendment and overwhelmingly approved the measure. It should be noted that several members of the panel spoke in support of the Conyers amendment and also expressed a desire to pair the Permanent Internet Tax Freedom Act with remote sales tax legislation. NATIVE AMERICAN AFFAIRS On June 11, the Senate Committee on Indian Affairs approved legislation (S 2188) that would overturn the U.S. Supreme Court's Carcieri v. Salazar decision. In Carcieri, the Court ruled that the secretary of the Interior's trust land acquisition authority is limited to those tribes that were under federal jurisdiction at the time of the passage of the Indian Reorganization Act of 1934 (IRA). During the committee's consideration of the bill, the panel adopted an amendment by Vice Chairman John Barrasso (R- WY) that would direct that secretary of the Interior to conduct a study on the effects of the Carcieri decision on Indian tribes and tribal land. As part of his opening remarks, Chairman Jon Tester (D- MT) acknowledged that some of his colleagues in the Senate still have issues with the legislation; accordingly, he pledged to work with those members going forward. Absent agreement on next steps, S 2188 will not advance to the floor of the Senate. 4

5 In the House, two Carcieri bills that were introduced in the House earlier this year remain in legislative limbo. The first piece of legislation, HR 666, has 33 cosponsors, including all five Democratic members who sit on the Natural Resources Committee's Indian and Alaska Native Affairs Subcommittee. The second bill, HR 279, has a total of nineteen cosponsors. Both measures would provide the Interior secretary with authority to take land into trust for all tribes. However, HR 279 would explicitly extend the secretary's trust acquisition authority to any Alaska native community that the secretary acknowledges to exist as an Indian tribe. In other developments this past quarter, the Department of the Interior announced the publication of a proposed regulation that would reform the process whereby an American Indian group is able to be officially recognized by the United States as an Indian Tribe. Among other things, the proposed rule would grant recognition to an Indian group that can show community and political influence or authority from 1934 to present, rather than from as early as 1789, as called for under existing rules. The proposed rule also would eliminate the need for a petitioner to demonstrate that third parties identify them as a tribe from 1900 to the present. States, local governments, and other organizations have concerns that the new rules could result in Federal recognition for hundreds of tribes that, for years, have failed to receive official tribal status. Once an Indian group is officially recognized by the federal government, all the rights and privileges that come with recognition are then afforded to the tribe. Also, under the Indian Gaming Regulatory Act (IGRA), newly recognized tribes are a clear exception to IGRA's prohibition on post gaming. TAX- EXEMPT STATUS OF MUNICIPAL BONDS Under current law, investors are not required to pay federal income taxes on interest earned from most bonds issued by state and local governments. Local governments also benefit from the ability to offer tax exempt municipal bonds due to significantly reduced debt service burden, thus providing counties with a cost- effective tool to finance public infrastructure projects and capital improvements. However, a number of recent tax- reform proposals have aimed to limit or even eliminate the current exemption for municipal bond interest as a way to achieve deficit reduction. For example, the White House, as part of its fiscal year 2015 budget submission, proposed to cap the value of the tax exemption for interest paid by municipal bonds. Under the president's request, the value of tax benefits would be limited for the top two percent of earners to 28 percent from the current 35 percent. Should such a proposal become reality, counties and other localities will spend billions more on interest payments when issuing bonds to finance much- needed infrastructure projects, ultimately hindering their ability to undertake such projects. Incidentally, this is the fourth time that the Obama administration has suggested capping the value of the tax exemption for high- income earners. 5

6 In addition, House Ways and Means Committee Chairman Dave Camp (R- MI) earlier this year unveiled a comprehensive tax reform proposal that would create three individual income brackets (10 percent, 25 percent, and 35 percent), down from the current system of seven tax brackets (which range from 10 percent to 39.6 percent). Among other things, Camp's proposal would tax a portion of municipal bond interest for those in the highest bracket. Specifically, the surtax would apply to individuals with incomes of $400,000 or more and couples with $450,000 or more. It would essentially cap at 25 percent the value of the tax exemption for those in the 35 percent tax bracket. It should be noted that Congressman Camp will not be seeking reelection this fall and will instead retire from Congress. Representative Paul Ryan (R- WI) is considered the most likely candidate to replace Camp as chairman of the Ways and Means panel next year. SOCIAL SERVICES BLOCK GRANT The Senate Labor, Health and Human Services (HHS) Appropriations Subcommittee adopted this past quarter its spending measure for fiscal year The committee accepted the the Social Services Block Grant (SSBG) at the current $1.7 billion level. In related developments in the upper chamber, the Senate Finance Committee rejected a provision in a child welfare bill (S 1518) that would have redirected all SSBG funds into child welfare initiatives, thus terminating the program. Although the Finance Committee approved a child welfare services measure that included some of the concepts embodied in S 1518, the committee did not accept the proposal to eliminate the SSBG program. Across Capitol Hill, the lower chamber's budget resolution assumes that the SSBG will be terminated in fiscal year 2015 and beyond. However, the decision to fund the program rests with the House Appropriations Committee, which has not announced a mark up for its Labor- HHS spending bill. As in recent years, it is expected that the spending measure will be one of the last bills considered and, in fact, may be folded into a larger package containing other unfinished business at the end of the Congress. We hope this information is useful to Wisconsin county officials. If you have any questions or comments, please feel free to contact us. 6