OBAMA-BIDEN PRESIDENCY

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1 Seventh Floor 1501 M Street, NW Washington, DC Phone: (202) Fax: (202) MEMORANDUM To: Clients and Friends of Powers Pyles Sutter & Verville, PC From: Peter Thomas, Adam Chrisney and Theresa Morgan Date: November 6, 2008 Re: 2008 Election Outcomes and Legislative Impact This memorandum reviews the 2008 Presidential and Congressional elections and provides analysis of the future direction of White House policy and the ramifications for the near-term political make-up of the House and Senate and relevant congressional committees. OBAMA-BIDEN PRESIDENCY Taken as a whole, the Obama win of the presidential race and the Democratic gains in the House and Senate coupled with the change-over in congressional power from the last election in 2006 has the Democratic party in majority control of the federal government. However, with the recent financial instability, looming recession, ongoing overseas conflicts and other tests facing the nation, the challenges for the President-elect and his team are daunting. The first order of business for President-Elect Obama is organizing and selecting his transition team, deciding whether and how to engage a lame-duck session of Congress scheduled for next week, beginning selection of his White House Staff and Cabinet, and mapping out his strategy for the first weeks, months and years of his Presidency. Obama has a reasonable claim to a mandate from the people as Americans voted in record numbers this year. From incomplete results, it appears that million Americans will have voted for president in this election with a 64.1 percent voter turnout rate, the highest since the beginning of the 1900s. However, it is arguable whether the congressional elections constitute a landslide for the Democrats, considering the fact that they did not achieve the margin of victory in either chamber of Congress that many predicted. {D DOC / 1 }1

2 AGENDA High on the list of options after Obama takes office in January will be an expansion of the State Children's Health Insurance Program to make healthcare available to more children in lowincome families, eliminating restrictions on federal funding for stem cell research, and overturning a recent Supreme Court decision on equal-pay protections for women. Various budget models and ideas may be offered to promote a major infrastructure package that could include not just the building of roads and bridges but new schools, community health centers, and investment in various new energy options. The strategy behind such a legislative package would be to stimulate the economy and at the same time give the new President a quick, clear accomplishment on an issue that most voters support. Lame-Duck Session and Beyond: The lame-duck session of Congress in the middle of this month will test the political capabilities for passage of economic stimulus legislation beyond unemployment benefits and food stamps. The President is currently opposed to such legislation. It will be an uphill fight to pass legislation with so many out-going members of the opposite party. The real battle will come when the House and Senate take up an omnibus appropriations bill anticipated in late January or early February shortly after Obama takes office. Whether the Obama Administration asserts itself into the remaining work needed to be done on the FY 2009 spending bills remains to be seen. While the details of the FY 2010 budget offered by the new President will be later than usual, a basic outline of the incoming President s priorities will be sent to Congress in early February. The new administration will also need to address how to continue in Iraq and Afghanistan, including what could be an additional $100 billion for military operations overseas. In the same period, if not this year, the U.S. Treasury will need to tap into the second $350 billion authorization of its financial rescue plan forcing a debate in Congress on its direction. But the most telling decision for the incoming President could be where he comes down in choosing between two of his signature issues: energy policy and health care reform. CABINET & ADVISORS One of Obama s first tasks is building a Democratic administration to lead the country into the financial recovery that he promised and, presumably, out of war. A final decision on his chief-of-staff post could be announced as early as this week, and whoever is appointed would have major input in the personnel decisions that follow. Early indications are that Rep. Rahm Emanuel (D-IL), a close friend of Obama, is the frontrunner to become White House chief of staff. While Emanuel brings valuable experience from earlier work in the White House under President Clinton, House leadership experience, and a good relationship with the top strategist for Obama s campaign, David Axelrod, his temperament could be both an asset and a liability. Later announcements of appointments are expected to come in clusters and will likely start with the Treasury Department and other positions with influence over the economic crisis. Other White House staff and relevant Cabinet Secretary candidates are being floated, but it is {D DOC / 1 }2

3 likely that many names will surface before final decisions are made. Current likely candidates for key cabinet positions include the following: Deputy chief of staff: Pete Rouse, chief of staff in Obama's Senate office; longtime Obama adviser Valerie Jarrett; Jim Messina, campaign chief of staff. Senior adviser: David Plouffe, David Axelrod, Steve Hildebrand. White House counsel: Bob Bauer, campaign counsel; Chris Lu, Obama legislative director and member of transition staff; Heather Higginbottom, campaign senior policy strategist and longtime aide to Sen. John F. Kerry; Mike Strautmanis, congressional affairs for campaign and former chief counsel in Senate office. Press secretary: Robert Gibbs, Linda Douglass, Bill Burton, Stephanie Cutter. Director of legislative affairs: Chris Lu, Mike Strautmanis. Domestic policy adviser: Heather Higginbottom, Jason Furman, Neera Tanden. Secretary of Health and Human Services: Tom Daschle, former Senate Democratic Leader; Democratic National Committee Chairman Howard Dean, a physician; John Kitzhaber, doctor and former Oregon governor. Education secretary: David Boren, president of the University of Oklahoma and former U.S. senator and former Oklahoma Governor; Former New Jersey Gov. Tom Kean (R), who was chairman of the 9/11 Commission; Rep. George Miller (D-Calif.) of House Education and the Workforce Committee. HOUSE IMPACT As of now, it appears Democrats will gain at least 20 seats in the House of Representatives, not the upper 20s they were expecting. While there are still a number of outstanding races to be settled, the current breakdown stands at 254 Democrats, 173 Republicans and eight seats undecided. This will give Speaker of the House Nancy Pelosi an overwhelming majority to work with and provide Obama a secure base from which to direct his legislative agenda. This gain comes after Democrats 30-seat pick-up in 2006, representing the first time in 75 years that Democrats have seen such large gains in back-to-back cycles. Again, while the gains were significant, they were not the tidal wave that was predicted as the efforts of the Republican Presidential nominee McCain and the party helped shore up a number of embattled Republican incumbents in many Mid-West and Southern red states. ELECTION RESULTS & COMMITTEE CHANGES It was a bad night for the GOP s moderates starting with longtime member Rep. Christopher Shays (R-CT), the last New England Republican in the House. Other notables that went down in defeat were Reps. Ric Keller and Tom Feeney from Florida, New Yorker John Randy Kuhl, {D DOC / 1 }3

4 Marilyn Musgrave (R-CO), Rep. Steve Chabot (R-OH) and Robin Hayes (R-NC). Reps. Phil English (R-PA) also lost his race. As a member of the House Ways and Means Health Subcommittee and sponsor of the therapy caps moratorium as well as other rehabilitation legislation, this is a significant loss. In addition, Republican leadership has lost its Conference Secretary as Rep. Adam Putnam (R-FL) announced he will step down from that position to explore a run for governor of Florida. Notable Democratic outcomes were Reps. John P. Murtha (D-PA), who held off a tough challenge to win his race while Rep. Tim Mahoney (D-FL) lost, largely due to the disclosure of an affair with a former staffer. Rep. Don Cazayoux (D-LA) lost the seat he won in a special election this past spring. The numbers of new Democrats in the House will likely result in increased Democratic ratios on key committees which will in turn likely make consideration and passage of legislation smoother than in recent years as it will be easier to stifle minority objections and procedural delays. Of the many changes, a disproportionate amount seemed to impact committees with jurisdiction over healthcare issues. House Ways & Means Committee: Wholesale changes are expected for this committee including 3 losses for Democrats McNulty (retiring), Emanuel (as noted earlier), and Tubbs- Jones (deceased). The latter two were members of the Health Subcommittee. Republican changes number eight including two electoral losses for Porter and English and the retirements of Ranking Member McCrery as well as Reps. Hulshof, Ron Lewis, Ramstad, Reynolds, and Weller. Congressmen English, Hulshof and Ramstad were all members of the Health Subcommittee as well. Leadership on this Committee should stay relatively stable with Reps. Rangel (R-NY) and Stark (D-CA) expected to remain Full and Health Subcommittee Chairmen, respectively. For the Republicans, there will be a new Ranking Member with McCrery s departure though Rep. Camp is expected to retain his Health Subcommittee Ranking Member slot if not compete with Reps. Herger (R-CA) and Sam Johnson (R-TX) to become ranking Member for the Full Committee. Therefore, the early agenda of the committee should remain relatively stable with a focus on tax reform and healthcare policy, including Medicare. Rep. Stark has stated that he would like to work with Obama to enact comprehensive healthcare reform and rein in healthcare spending while achieving affordable healthcare for all. House Energy & Commerce Committee: The changes in this committee are all to retirements as Democrat Rep. Hooley and Republicans Cubin, Ferguson, Wilson, Fosella, and Pickering, are leaving office voluntarily. All but the last two were on the Health Subcommittee. The Chairmen and Ranking Members are all expected to remain stable (Dingell and Pallone for the Democrats and Barton and Deal for the Republicans). Likely early agenda items for this committee include stem cell research, Medicaid reforms, child health insurance coverage, as well as overall healthcare reform. {D DOC / 1 }4

5 In an interesting development, it was reported Wednesday, November 5th that the longrunning antagonism between veteran Committee leader Chairman Dingell (D-MI) and the Committee s number two Democrat, Rep. Waxman (D-CA), has boiled over yet again as a top Democratic aide stated that Rep. Waxman, a liberal ally of Speaker Nancy Pelosi, will challenge Rep. Dingell to be full Committee chairman. Results will unfold during the mid-november reorganizational session. Appropriations Committee: Again, most of the changes are on the Republican side and disproportionately affect the Labor, Health and Human Services (L/HHS) Subcommittee as retirements or running for the Senate claimed Democrats Reps. Cramer and Tom Udall and Republican Reps. Hobson, Knollenberg, LaHood and, from the L/HHS Subcommittee, Chairman Walsh, and Reps. Peterson, Regula, and Weldon. Due to the seniority of a number of these Congressmen, there will likely be changes to the Republican Subcommittee chairs, including L/HHS which loses its Chairman. Here it is not so much an agenda impact as a capacity impact as the economic crisis and resulting huge budget deficit, currently projected to easily surpass $1 trillion, coupled with a desire to spend billions more on healthcare reform, could very well mean that increased spending through appropriations is curtailed. While such an impact is yet-to-be-demonstrated on the new Administration and Congress, first tests will be the consideration of an economic stimulus package during the lame-duck session and final resolution of the outstanding 2008 appropriations bills which were ducked by the current Congress through passage of a Continuing Resolution that expires March 6, SENATE IMPACT With three races still too close to call, it is clear that Democrats have picked up a number of seats in the Senate and while they have increased their majority in that chamber as well, they have fallen short of their filibuster-proof goal of 60 votes. It was clear that even the 60- member/vote threshold would have presented filibuster challenges as a number of new Senators are relatively conservative on select issues. In addition, the Senate has one clear recalcitrant member of the caucus with Sen. Lieberman (Independent-CT) who will likely chart his own course on defense, homeland security and foreign affairs issues. Regardless of his newly superior numbers, Senate Majority Leader Reid is going to have his work cut out for him in herding the Democrats on issue after issue in the new Congress. ELECTION RESULTS & COMMITTEE CHANGES Democrats picked up open Senate seats in Colorado, New Mexico and Virginia with respective wins by Senators-elect Tom Udall, Mark Udall and Mark Warner. They also captured seats in New Hampshire and North Carolina where Senators-elect Shaheen and Hagan defeated Sununu and Dole respectively. In a late breaking development, Senator Gordon Smith (R-OR) conceded his race to Democratic challenger Jeff Merkley giving Democrats 57 Senate seats (55 Democrats and two Independents who caucus with the Democrats). {D DOC / 1 }5

6 Still too close to call are races for the seats held by Senators Stevens (R-AK) and Chambliss (R- GA), with the latter in significant jeopardy of a run-off election which is required by Georgia state law. Also, a recount will occur in Minnesota where Sen. Coleman has a 206 vote margin against former Saturday Night Live writer, Al Franken. While it appears Republicans have won these races, as of now, they also securely staved off losses in Maine (Collins), Mississippi (Wicker) and Kentucky (McConnell). One wild card concern is Sen. Stevens outstanding set of felony convictions which is on appeal. The Senate could decide to expel Stevens if he wins reelection, but that requires 67 votes, a very high threshold. In addition, now that they have won the Presidency and Vice Presidency, the seats held by Sens. Obama and Biden will have to be filled in short order. For Obama, the potential successors are Reps. Jesse Jackson, Jr., Jan Schakowsky, and Tammy Duckworth, who lost limbs as a soldier in Iraq and a tight House race in Duckworth now serves as Illinois Head of the Veterans Administration. For Biden, the replacement could be Lt. Gov. John Carney or a replacement could be temporarily made to delay for a special-election until 2010 when Biden s son, the current state Attorney General, could run for the post. Finance Committee: Unless select Senators are tapped by Obama for cabinet positions (Kerry, Bingaman and others have been mentioned for certain positions), most members will be returning for the next Congress all except Sen. Sununu (R-NH). In terms of the committee s agenda, Chairman Baucus has been a strong proponent of early consideration of healthcare reform and is compiling a white paper on bipartisan health system reform options. In addition, all Medicare or Medicaid legislation falls solely within the committee s jurisdiction. H.E.L.P. Committee: Unless due to Administration appointments, most members will be returning for the next Congress all except Sen. Obama, whose seat will have to be filled with a replacement. As mentioned earlier, Chairman Kennedy, assuming his health holds, and others on the H.E.L.P. committee, will be an ardent proponent of early consideration of comprehensive healthcare reform. Appropriations Committee: Two changes for Republicans came from Sens. Allard (CO) and Domenici (NM), retiring this year. Neither, however, served on the Labor, Health and Human Services Subcommittee, so little practical effect will be felt. As with the House, the budget deficit will undoubtedly limit the scope of Congress spending proposals. Finally, with many new Democratic members in both the House and Senate, there will be many staff changes. But the biggest impact could be in leadership and on Committees where many could be tapped to fill out mid- to upper level positions in the new Administration. IMPACT ON HEALTH SYSTEM REFORM Whatever political and legislative game plan is chosen for health system reform, timing is crucial. Many Democrats would argue that the new president will be making a grave mistake if he does not strike early in his term on healthcare reform issues. Others believe a more realistic timeline for health reform will be the second half of his first term. {D DOC / 1 }6

7 Proponents for health care system reform will certainly be energized by the outcome of this election, with an incoming Democratic administration and a larger majority of Democrats in both houses of Congress. But it will remain a daunting challenge for Congress to cover millions of the uninsured while the country is in an economic crisis while facing ever rising health care costs. Democratic leaders in the current Congress have already begun preparing the health care reform debate. Universal coverage remains a top priority for Sen. Hillary Clinton (D-NY) while Sen. Ted Kennedy (D-MA), chair of the Senate HELP Committee and a long time proponent of expanding health care coverage, is promoting the idea of a health care reform consensus bill to be filed just after inauguration day. Senate Finance Chair Max Baucus (D-MT) has not ruled out using the budget reconciliation process to outline health system reform goals, and committee staffers from Budget, Finance and HELP have been meeting on a regular basis to reach a consensus on a plan for reform. Democrats aim to expand coverage to the uninsured while trying to control health care costs. Towards that end, lawmakers are promoting cost controlling measures such as comparative effectiveness, pay for performance, home and community based services, cost transparency, and anti-fraud initiatives. But these measures will likely fall short of covering all of the expected costs of health care reform, and so lawmakers are also considering measures such as cutting payments to private Medicare plans and capping employer based health care insurance tax deductions and exemptions. Currently, it is unclear how Democrats plan to structure a new coverage initiative. For his part, President-Elect Obama has suggested expanding employer based coverage by requiring large companies offer health insurance coverage to employees. In addition, Obama supports creating a federal health insurance plan as an alternative to employer based coverage and mandating health insurance coverage for children. Obama has also promoted the creation of a National Health Insurance Exchange, through which Americans could enroll in the public plan or an approved private plan. Participating insurers would have to issue every applicant a policy and charge premiums independent of health status. The Exchange would require that all the plans offered are at least as generous as the new public plan and meet the same standards for quality and efficiency. Also, before the end of 2009, Congress will again revisit the physician payment structure for Medicare. Many expect that reform to the Medicare payment system will be included in, and perhaps even a starting point for, overall health system reform. Although it is not expected that Medicare coverage will be expanded in a material way, Democrats in Congress are considering expanding income eligibility for Medicaid and Obama, too, supports the expansion of Medicaid to cover more of the uninsured, especially children. As more details emerge, we will continue to relay developments. {D DOC / 1 }7