Capital Thinking ~ January 7, 2013

General Legislative
This week, House Members return to their home districts for a District Work Week.

The Senate will not convene again until Monday, January 21 for the joint session for the Inaugural
Ceremonies.

Fiscal Cliff
On January 1, 2013, the House and Senate passed The American Tax Relief Act of 2012, a deal
negotiated by Vice President Joseph Biden and Senate Republican Leader Mitch McConnell. The bill was
signed into law by the President on January 2, 2013. This fiscal cliff outcome reinforces the notion that on
matters of deficit reduction, Congress and the Administration are resigned to incremental steps rather
than deals of the grand bargain variety. Therefore, the Biden/McConnell compromise represents the
second step in what many now see as a likely three-step deficit reduction process.

The first step, the Budget Control Act, agreed to in August 2011, was prompted by significant
disagreement as to how to approach the last debt ceiling increase, and resulted in approximately $1
trillion in discretionary spending cuts along with the now much-discussed spending sequester cuts to
defense and other domestic spending programs.

The Biden/McConnell compromise constitutes a second step of deficit reduction, and is almost
exclusively focused on increased tax revenue of more than $600 billion according to the Administration’s
scorekeeping. In actuality, the Biden/McConnell deal made permanent $3.9 trillion of tax cuts, but when
measured against $4.5 trillion of current tax policy, the legislation yields roughly $600 billion in “savings.”
This $600 billion is roughly $1 trillion below the President’s initial revenue demand made shortly after the
2012 election, and is even below Speaker Boehner’s proposal to raise $800 billion in additional revenue
through comprehensive tax reform (as part of a major spending reform package).

We may know whether there will be a third phase of deficit reduction relatively quickly as debt ceiling
authority must be raised in the next few months. The need to raise the debt ceiling could provoke a fiscal
fight that may result in similarly contentious negotiations. Congressional Republicans are promising to
insist upon significant long-term entitlement spending cuts in order to allow new debt ceiling authority,
while the President, as he said in last Monday’s mid-afternoon fiscal cliff speech, will insist that additional
tax revenue will be a part of any further deal.

While the fate of comprehensive tax reform may in part depend upon agreement between the President
and Congress on the proper mix of spending cuts and revenue increases moving forward, the next step of
deficit reduction presents an opportunity for bipartisan reform that has eluded the President and
Congressional negotiators to date. It continues to be the case that both parties want a tax reform process,
though they have not yet agreed to a revenue target that is critical for reform to become a reality.
Republicans will also argue that because of where the line was drawn for what constitutes as “upper

Patton Boggs Capital Thinking Weekly Update | January 7, 2013
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income” ($400,000 individual/$450,000 family), which was lower than most Republicans wanted, there
may actually be a bit more “wiggle room” to horse trade credits, deductions and exclusions to not only
raise net revenue, but also potentially lower rates in the context of a comprehensive tax reform process.

The President, in remarks looking forward to the debt ceiling, has said he plans to reform the tax code by
removing loopholes and deductions that favor corporations and wealthy individuals in order to secure
additional revenue for deficit reduction, while also lowering the corporate tax rate. For their part,
Congressional Republicans would very much like to embark on tax reform, but, having now agreed to
$600 billion in tax revenue, would prefer to do so on a revenue-neutral basis. It is entirely possible that in
the next two months a revenue target for reform might be established as part of a third step of deficit
reduction.

Contact Information

For additional insights about likely policy developments, please feel free to contact the author of this
section: Joseph Urso at 202-457-5349 or jurso@pattonboggs.com.

Agriculture & Food
LEGISLATIVE ACTIVITY

 Farm Bill Extension. On Tuesday, January 1, Congress passed its fiscal cliff agreement, which
included provisions extending the 2008 Farm Bill through FY 2013. Highlights include:

o Dairy. The extension prevents the 1949 law from taking effect, which would have effectively
doubled milk prices. Overall, dairy processors secured a win because the extension provisions do
not include the dairy market stabilization program that the National Milk Producers Federation
and House Agriculture Committee Ranking Member Collin Peterson (D-MN) supported in the
Senate-passed and House versions of the Farm Bill.

o Disaster Assistance. The extension provides $80 million for livestock indemnity payments, $400
million for the livestock forage disaster program and $50 million for emergency assistance for
livestock, honey bees and farm-raised fish.

o Supplemental Assistance Nutrition Program (SNAP). Overall, there are no significant changes
to SNAP funding.

o Research. The extension provides only discretionary funding authority (no mandatory spending)
for research programs, including: (1) the Organic Agricultural Research and Extension Initiative;
(2) Specialty Crop Research Initiative; (3) Beginning Farmer and Rancher Development; and (4)
Biomass Research and Development. This means that these programs are now subject to annual
appropriations. Based on last year’s Senate-passed Farm Bill and the House Agriculture

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Committee’s Farm Bill, both pieces of legislation set higher authorization levels for the research
programs listed.

 Farm Bill Timeline. Although the House Agriculture Committee leadership had announced that it will
mark up the Farm Bill on February 27, Chairman Frank Lucas (R-OK) stated that the markup will
likely occur after February in order to account for the developments of sequestration-related spending
cuts and debt limit that will take place in March. Senate Agriculture Committee Chairwoman Debbie
Stabenow (D-MI) announced that she plans to move quickly on the Farm Bill this year, but has not
provided a specific timeline given the anticipated fiscal conversations in March.

On Thursday, January 3, House Agriculture Committee Ranking Member Collin Peterson (D-MN)
sent a letter to both House Speaker John Boehner (R-OH) and Majority Leader Eric Cantor (R-VA)
that strongly criticized the leadership’s handling of the Farm Bill last year. He also requested a
written commitment that the Farm Bill will be scheduled for consideration on the House Floor this year
and stated that he would not participate in a markup if the House leadership made no commitment.

REGULATORY ACTIVITY

 Food Safety Modernization Act. On Friday, January 4, the Food and Drug Administration (FDA)
released advance notices of proposed rules on: (1) Current Good Manufacturing Practice and Hazard
Analysis and Risk-Based Preventive Controls for Human Food; and (2) Standards for the Growing,
Harvesting, Packing, and Holding of Produce for Human Consumption. These are the first major
proposed rules issued under the Food Safety Modernization Act, and the release of the advance
notices marked the two-year anniversary of when the Food Safety Modernization Act was signed into
law. We expect FDA to publish the notices in the Federal Register on January 16. The deadline to
submit comments is May 16, 2013.

Contact Information

section: Dana Weekes at 202-457-6307 or dweekes@pattonboggs.com.

Budget, Appropriations

Supplemental Appropriations for Disaster Aid. After facing bipartisan criticism for cancelling a vote on
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the Senate-passed $60.4 billion emergency disaster appropriations bill during the final days of the 112
Congress, on Friday House Speaker John Boehner (R-OH) brought up an initial package of aid for states
impacted by Superstorm Sandy, which was quickly approved by both chambers. The measure (H.R. 41)
will provide $9.7 billion for the National Flood Insurance Program. On January 15, the House will begin
consideration of legislation comprising a slightly pared down version of the remainder of the
Administration’s request. The House will likely utilize a two-pronged approach to allow Members to vote

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separately on disaster relief funding (approximately $17 billion) and longer-term mitigation funding
(approximately $33 billion).

 New Budget and Appropriations Committee Assignments and Leadership Selections:

o Senate Budget Committee. New Chairwoman Patty Murray (D-WA) named three new
Democrats to the Senate Budget Committee: Tammy Baldwin (D-WI), Tim Kaine (D-VA) and
Angus King (I-ME) (Senator King is an Independent but will caucus with the Democrats).
Republicans also added new Members Kelly Ayotte (R-NH) and Roger Wicker (R-MS).

o Senate Appropriations Committee. Following the passing of Senator Daniel Inouye (D-HI),
Senator Barbara Mikulski (D-MD) was selected to lead the Senate Appropriations Committee,
becoming the first woman in the 150-year history of the Committee to serve as Chair. New
Democratic Members of the Committee include Tom Udall (D-NM), Jeanne Shaheen (D-NH)
and Jeff Merkley (D-OR). New Republican Committee Members include Mike Johanns (R-
NE) and John Boozman (R-AR). While not yet confirmed, Richard Shelby (R-AL) is expected
to be voted in as Ranking Member, taking over the position for the term-limited Thad Cochran
(R-MS).

o House Budget Committee. The House Budget Committee includes several new Republican
and Democratic Members: Jim Renacci (R-OH), Vicki Hartzler (R-MO), Scott Rigell (R-VA),
Marsha Blackburn (R-TN), Jackie Walorski (R-IN), Barbara Lee (D-CA), David Cicilline (D-RI)
and Danny Heck (D-WA).

o House Appropriations Committee. Chairman Hal Rogers (R-KY) announced the House
Appropriations Subcommittee Chairs: Agriculture and Rural Development – Chairman Robert
Aderholt; Commerce, Justice, and Science – Chairman Frank Wolf; Defense – Chairman Bill
Young; Energy and Water Development – Chairman Rodney Frelinghuysen; Financial
Services – Chairman Ander Crenshaw; Homeland Security – Chairman John Carter; Interior,
Environment – Chairman Mike Simpson; Labor, Health and Human Services, Education –
Chairman Jack Kingston; Legislative Branch – Chairman Rodney Alexander; Military
Construction, Veterans Affairs – Chairman John Culberson; State, Foreign Operations –
Chairwoman Kay Granger; and Transportation, Housing and Urban Development – Chairman
Tom Latham.

Republicans also named new Committee Members Jaime Herrera Beutler (R-WA), Chuck
Fleischmann (R-TN), Jeff Fortenberry (R-NE), David Joyce (R-OH), Thomas Rooney (R-FL) and
David Valadao (R-CA).

New Ranking Member Nita Lowey (D-NY) has not yet announced who will serve as the Ranking
Members of the Subcommittees, but several new Democrats were added to the Committee, including
Steve Israel (D-NY), Tim Ryan (D-NY), Dutch Ruppersberger (D-MD) and Debbie Wasserman-
Schultz (D-FL).

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Contact Information

section: Pam Welsh at 202-457-6493 or pwelsh@pattonboggs.com.

Cybersecurity
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 Cybersecurity in the 113 Congress. While House Homeland Security Committee Chairman
Michael McCaul (R-TX) and Senate Homeland Security and Governmental Affairs Committee
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Chairman Tom Carper (D-DE) have both named cybersecurity as a priority for the 113 Congress, it
remains unclear how quickly the Congress will move on cybersecurity legislation in the coming
months. Chairman McCaul recently named Representative Patrick Meehan (R-PA) as Chairman of
the House Homeland Security Subcommittee on Cybersecurity, Infrastructure Protection and Security
Technologies after former Subcommittee Chairman Dan Lungren (R-CA) lost his election in
November.

EXECUTIVE BRANCH ACTIVITY

 Executive Order. One of the major factors that will determine the timeline of cybersecurity legislation
will be if President Obama issues his much anticipated Executive Order (EO) this month prior to
Congress getting started in earnest on legislative issues. Drafts of the EO have been circulating for
several months. A number of Congressional Republicans have expressed concerns about the
Administration releasing a cybersecurity EO, including a group of 46 House Republicans led by
Representatives Marsha Blackburn (R-TN) and Steve Scalise (R-LA) who sent a letter to the
President at the end of December urging him not to release an EO. The letter stated that the
President should support the Republicans’ information sharing legislation, the Cyber Intelligence
Sharing and Intelligence Act (CISPA), which House Intelligence Committee Chairman Mike Rogers
(R-MI) is likely to reintroduce in some form in the next Congress. The CISPA bill has been a
controversial issue with privacy groups and others who have expressed serious concerns with the bill.
In 2012, the Obama Administration also issued a veto threat against the CISPA bill.

Contact Information

section: Amy Davenport at 202-457-6528 or adavenport@pattonboggs.com.

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Education

 Workforce Investment Act Reauthorization. While we do not yet know the specific timeline, we
expect the House Education and the Workforce Committee to move quickly to reauthorize the
Workforce Investment Act, which is long overdue. The Workforce Investment Improvement Act of
2012, which passed out of the Committee on a party-line vote last summer but was just reported out
last month, is a likely starting point for the measure.

 Higher Education Act (HEA) Reauthorization. In preparation for reauthorizing the Higher Education
Act in 2014, the House Education and the Workforce Committee plans to hold an open call for
suggestions from the higher education community in the coming weeks. Specifically, the Committee
will be asking stakeholders to submit their priorities for the HEA reauthorization to inform the
Committee’s drafting of the legislation. The Committee is looking to issue a draft bill before the end of
the year, although this timeline could change depending upon legislative developments.

 Elementary and Secondary Education Reauthorization. We also expect reauthorization of the
Elementary and Secondary Education (ESEA) Act to be a priority for the House Education and the
Workforce Committee early in the session. The Committee is likely to take a broader, more
comprehensive approach to reauthorizing ESEA this Congress instead of the more piecemeal
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approach it took last Congress. Congressman Todd Rokita (R-IN), who was a freshman in the 112
Congress, will serve as Chair of the Subcommittee on Early Childhood, Elementary, and Secondary
Education with jurisdiction over reauthorization.
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 Education Committee Assignments for the 113 Congress. Chairman John Kline (R-MN) named
three new Republicans to the House Education and the Workforce Committee: Susan Brooks of
Indiana, Richard Hudson of North Carolina and Luke Messer of Indiana. Democrats also added three
Members to the Committee: John Yarmuth of Kentucky, Frederica Wilson of Florida and Suzanne
Bonamici of Oregon. Congresswoman Virginia Foxx (R-NC) will continue to serve as Chair of the
Subcommittee on Higher Education and Workforce Training and will have great influence over
reauthorization processes for both the Workforce Investment Act and the Higher Education Act.

Senate Republicans on the Health, Education, Labor and Pensions (HELP) Committee announced
their new Committee assignments last week, which included a spot for Senator Tim Scott, who was
appointed to Jim DeMint’s South Carolina seat. Senator Lamar Alexander (R-TN) also announced
last week that he plans to fill the Ranking Member slot on the Committee as expected, because
Senator Michael Enzi (R-WY) is term-limited from the position. Senate leaders are expected to
officially elect him to the position later this month. The three Democrats joining the HELP Committee
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for the 113 Congress are Tammy Baldwin of Wisconsin, Christopher Murphy of Connecticut, and
Elizabeth Warren of Massachusetts.

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Contact Information

For additional insights about likely policy developments, please feel free to contact the authors of this
section: Amy Budner Smith at 202-457-6154 or abudner@pattonboggs.com; Dana Weekes at 202-457-
6307 or dweekes@pattonboggs.com.

Energy

 Energy Taxes. Title IV of the “fiscal cliff bill” (H.R. 8, the American Taxpayer Relief Act of 2012)
provides a host of short-term energy tax extenders, including an extension and modification of the
wind Production Tax Credit for one year – for facilities where construction begins before January 1,
2014. The bill also includes tax credit extenders for certain plug-in electric vehicles, energy-efficient
new homes and appliances, biodiesel and alternative fuels, and research and experimentation,
among several others.

 Senate Energy Committee. Three Republican Senators will join the Energy and Natural Resources
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Committee in the 113 Congress to accommodate shifts in committee assignments: Jeff Flake of
Arizona, Tim Scott of South Carolina and Lamar Alexander of Tennessee.

REGULATORY ACTIVITY

 Keystone XL Pipeline. The Nebraska Department of Environmental Quality submitted its final report
to Governor Dave Heineman on Thursday, January 3. The Governor has up to 30 days to review the
report and inform the State Department of whether or not he approves the proposed Nebraska
Reroute. The State Department will then complete its Supplemental Environmental Impact Statement
and incorporate the Governor’s decision.

 Offshore Wind. The Bureau of Ocean Energy Management (BOEM) is soliciting public input and any
interest in a competitive lease for the New York Power Authority’s “Long Island-New York City
Offshore Wind Project.” Comments and any indication of a competitive interest are due by March 5.

 FERC. The Federal Energy Regulatory Commission’s (FERC) final rule on “Revisions to Electric
Organization Definition of Bulk Electric System and Rules of Procedure” will become final on March 5.
The commission approved modifications to the current definition of “bulk electric system” developed
by the North American Electric Reliability Corporation, as well as other proposed Nuclear Energy
Regulatory Commission (NERC) revisions.

 Nuclear. The Department of Energy/National Science Foundation’s Nuclear Science Advisory
Committee will meet in Maryland January 28-29 regarding scientific priorities for basic nuclear
science research.

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Contact Information

section: Tanya DeRivi at 202-457-6504 or tderivi@pattonboggs.com.

Environment

 Clean Air. Congressman Lamar Smith (R-TX), just prior to becoming the new Chairman of the House
Science, Space and Technology Committee, co-authored a letter to the Environmental Protection
Agency (EPA) and the White House asking for the agency to make data sets publicly available that
were used by the EPA in designing the new rule addressing fine particulate matter under the National
Ambient Air Quality Standards established by the Clean Air Act (CAA). At issue is the claim that the
new rule will produce $1.7 trillion, or 85 percent of the $2 trillion in total benefits resulting from the
CAA between 1990 and 2020.

REGULATORY ACTIVITY

 EPA Administrator Stepping Down. Administrator Lisa Jackson has announced she is stepping
down from the EPA. The two individuals reportedly in the running to succeed her are EPA Deputy
Administrator Bob Perciasepe and Assistant Administrator for EPA’s Office of Air and Radiation, Gina
McCarthy. Perciasepe led EPA’s water, air and radiation office under President Bill Clinton.
Administrator Jackson has stated that she will wait until after the State of the Union to officially leave
office. Even though the EPA Administrator is not a Cabinet Secretary position, her successor will
need to be confirmed by the Senate.

 Hydraulic Fracturing. EPA has issued a progress report on its study mandated by Congress,
entitled “Study of the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources.” The
agency acknowledges that “natural gas plays a key role in our nation’s clean energy future,” but
continues to have concerns about the potential human health and environmental impacts of
increasing use of hydraulic fracturing. The report only outlines progress made since September 2012
for 18 research projects now underway. Thus, according to the agency, the “information
presented…cannot be used to draw conclusions about potential impacts to drinking water resources”
from HF operations. Since the progress report provides only an overview of the agency’s efforts to
date, with little or no analysis of the data it has collected, it is unlikely to provide an impetus for new
regulatory requirements or legislation at the state or federal level.

Contact Information

section: Sarah Vilms at 202-457-5248 or svilms@pattonboggs.com.

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Financial Services

 New Republicans Join Senate Banking Committee. Senator Tom Coburn (R-OK) and Senator
Dean Heller (R-NV) will join the Senate Banking Committee in the 113th Congress, filling seats
previously held by Senators Roger Wicker (R-MS) and Jim DeMint (R-SC).

 Chairman Hensarling Calls for Private Flood Insurance. During the legislative debate for
Superstorm Sandy relief funds, House Financial Services Chairman Jeb Hensarling (R-TX) called for
a transition to a private flood insurance market to replace the National Flood Insurance Program.
Chairman Hensarling indicated that the Financial Services Committee will consider a legislative
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proposal to accomplish this goal during the 113 Congress.

 HFSC Designates Bachus as “Chairman Emeritus.” House Financial Services Committee
Chairman Jeb Hensarling (R-TX) announced that outgoing Chairman Spencer Bachus (R-AL) will
serve as the committee’s Chairman Emeritus.

REGULATORY ACTIVITY

 Media Reports Treasury Secretary Plans to Depart. Recent media reports indicate that Treasury
Secretary Timothy Geithner will leave the administration by the end of the month. The Administration
has not issued a formal response, nor has it identified Secretary Geithner’s possible successor.
White House Chief of Staff Jack Lew is among the list of candidates likely to be nominated to replace
Secretary Geithner.

Contact Information

section: Matthew Kulkin at 202-457-6056 or mkulkin@pattonboggs.com.

Health Care

 Fiscal Cliff Review. The American Taxpayer Relief Act of 2012 included a few small wins for some
health care providers, while the rest of the industry suffered cuts to pay for those Medicare
extensions. Physician payments under Medicare were given a reprieve from anticipated cuts with a
zero percent update for 2013, and other Medicare extensions offered relief for ambulance providers,
low-volume hospitals, outpatient therapy services, work geographic adjustment, Medicare-Dependent
hospital program, and specialized Medicare Advantage plans for special needs individuals. The law
also extends Transitional Medical Assistance, the Qualifying Individual Program, the Medicaid and
CHIP Express Lane option, Family-to-Family Health Information Centers and the Special Diabetes

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Program for Type 1diabetes and for Indians. Offsets totaling $30 billion hit hospitals particularly hard
($14 billion) through coding adjustments, cuts to radiology services and DSH rebasing. Other cuts
include rebasing ESRD payments, imaging cuts, competitive bidding for diabetic supplies, repealing
the CLASS program and rescinding all unobligated CO-OP funds.

The biggest concern for the industry, however, is still to come. The fiscal cliff deal only offers a short
60 day reprieve from sequestration, and the next cliff deal must also address the debt ceiling all of
which could mean much more severe cuts to the health care industry as Republicans fight to include
additional savings from entitlements. Drug companies, insurers, physicians and hospitals are all at
risk with a long list of savings proposals on the table. Those include, but are not limited to: bad debt,
GME and outpatient cuts to hospitals, elimination of the recently implemented payment enhancement
for primary care services in Medicaid, mandatory drug discounts/rebates for the dually eligible,
penalties or banning first dollar coverage by Medigap plans, cuts to Medicare Advantage plans, and
potential cost-sharing for post-acute care.
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 113 Congress Committee Posts. Committee rosters are coming together with a few new faces
filling leadership positions among the various committees of jurisdiction. Congressman Jack Kingston
(R-GA) will chair the House Appropriations Subcommittee on Labor, Health and Human Services, and
Education; Congressman Michael Burgess (R-TX) will serve as vice chair at the House Energy and
Commerce Committee’s Health and Oversight Subcommittees, with Congressman Tim Murphy (R-
PA) taking over the Oversight Subcommittee gavel. On the Senate side, Senator Bill Nelson (D-FL)
will serve as Chairman to the Special Committee on Aging, with additional Senate committee
decisions developing through this month.

REGULATORY ACTIVITY

 Partnership Exchange Guidance. The Center for Consumer Information and Insurance Oversight
(CCIO) posted guidance on the State Partnership Exchange. The guidance is for states that wish to
transition from a partnership with the federal government to running their own exchange. Those who
wish to do so by 2015 can file a blueprint with Health and Human Services (HHS) by November 18,
2013.

 Eligibility and Claim Status Operating Rules Enforcement Delay. The Centers for Medicare and
Medicare Services’ Office of E-Health Standards and Services (OESS) announced that to reduce the
potential disruption to the health care industry, it will not initiate enforcement of action until March 31,
2013 with respect to HIPAA covered entities (including health plans, health care providers and
clearinghouses) that are not in compliance with the operating rules adopted for the following
transactions as required by the Affordable Care Act: eligibility for a health plan and health care claim
status. Notwithstanding OESS’ discretionary application of its enforcement authority, the compliance
date for using the operating rules remains January 1, 2013.

 FDA Guidance on Pharma Product Applications. The Food and Drug Administration (FDA)
announced the availability of draft guidance for the industry in accordance with the FDA Safety and
Innovation Act (FDASIA) which amended the Federal Food, Drug, and Cosmetic Act (FD&C Act) to
require that certain submissions under the FD&C Act and Public Health Service Act (PHSA) be

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submitted in electronic format, beginning no earlier than two years after publication of the final version
of the draft guidance.

 IRS Rule on Shared Responsibility for Employers. The Internal Revenue Service (IRS) issued a
proposed rule implementing the Affordable Care Act’s provision on shared responsibility for
employers regarding employee health coverage. The proposed regulation affects only employers that
meet the definition of “applicable large employer” as described in the regulation. A public hearing on
the proposed rule has been scheduled for April 23, 2013 (agenda to be released April 3), with
comments due March 18, 2013.

OTHER HEALTH NEWS

 MedPAC Meeting. The Medicare Payment Advisory Commission (MedPAC) has scheduled a public
meeting on January 10-11, 2012. The agenda includes discussion on the following topics: the
Medicare Advantage Program: status report and recommendations on special needs plans; multiple
sessions on Assessing Payment Adequacy for hospital inpatient and outpatient services, physician
and other health professional services, ambulatory surgical center services, outpatient dialysis
services, home health care services, inpatient rehabilitation facility services, long-term care hospital
services, and hospice services; and a Status Report on Part D with a focus on the role of competition
in Part D.

 MACPAC Meeting. The Medicaid and Chip Payment and Access Commission (MACPAC) has
scheduled a public meeting on January 15-16. A meeting agenda will be released in advance of the
meeting.

 IOM Meeting. The Committee on Sports-Related Concussions in Youth will hold its first meeting on
January 7, 2013. The IOM is conducting a study on sports-related concussions in youth from
elementary school through young adulthood, including military personnel and their dependents.

Contact Information

section: Eugenia Edwards at 202-457-5622 or eedwards@pattonboggs.com.

International, Defense, and Homeland Security

 Senate Foreign Relations Committee (SFRC) Developments. In addition to the new Democratic
SFRC members discussed in a previous edition, Senator Tim Kaine (D-VA) and Senator Chris
Murphy (D-CT), the Committee now also has significant turnover on the Republican side. Five
Republicans have left the Committee; now split 10-8 instead of 10-9 in favor of the Democrats. They
will be replaced by Senator Ron Johnson (R-WI), Senator Jeff Flake (R-AZ), Senator John McCain
(R-AZ), and Senator Rand Paul (R-KY). Senator Johnson will continue his skepticism regarding the

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Obama Administration’s multilateral approach to arms control and international environmental issues.
Senator Flake, a former House Foreign Affairs Committee member, will express caution regarding
Congressional efforts to advance unilateral U.S. sanctions against countries and individuals of
concern. Senator McCain will continue to call for increased U.S. intervention in Syria and other global
trouble spots. Senator Paul will escalate his crusade against U.S. foreign assistance to Egypt and
what he sees as other uncooperative governments in the Middle East and globally.

 House Foreign Affairs Committee (HFAC) Developments. Republicans will experience massive
turnover on HFAC. Of the committee’s 25 GOP members, 15 did not serve on the panel in the
previous Congress, and 11 were elected to the House for the first time in 2012. Several freshman
Democrats will serve on HFAC as well, including Congressman Juan Vargas (D-CA), Congressman
Joe Kennedy (D-MA) and Congressman Alan Lowenthal (D-CA).

 Senate Finance Committee Trade Developments. Senator Michael Bennet (D-CO) and Senator
Sherrod Brown (D-OH) are the new Democratic members of the Senate Finance Committee, whose
margin will remain at 13-11 in favor of the Democrats in the new Congress. Senator Brown is a
longtime trade skeptic and can be expected to vote against most trade liberalization measures
coming before the committee, whereas Senator Bennet has maintained a free trade-oriented voting
record during his four years in office. The three new Republican members include Senator Johnny
Isakson (R-GA), Senator Rob Portman (R-OH) and Senator Pat Toomey (R-PA), all of whom are
ardent free-traders. Senator Portman, a former U.S. Trade Representative, will be particularly
assertive on trade issues.

 House Ways and Means Committee Trade Developments. Among the new Ways and Means
Committee Members, Congressman Tim Griffin (R-AR), Congressman Mike Kelly (R-PA),
Congressman Todd Young (R-IN) and Congresswoman Allyson Schwartz (D-PA) have strongly pro-
trade voting records, Congresswoman Linda Sanchez (D-CA) is considered a trade skeptic, and
Congressman Danny Davis (D-IL) has a mixed voting record on trade issues.

 Senate Intelligence Committee Developments. As previously mentioned, Senator Martin Heinrich
(D-NM) and Senator Angus King (I-ME), both freshmen, are the Democratic Caucus’s new members
on the Select Intelligence Committee. Senator Susan Collins (R-ME) and Senator Tom Coburn (R-
OK) are the Committee’s two new Republican members, replacing former Senator Olympia Snowe
(R-ME) and Senator Roy Blunt (R-MO). Senator Collins can be expected to be particularly active on
counterterrorism-related matters. As required under committee rules, the Committee’s partisan ratio
will remain at an 8-7 margin in favor of the majority Democrats.

 Senate and House Armed Services Committee (SASC and HASC) Developments. As previously
reported, the Democrats named Senator Kaine, Senator King, Senator Joe Donnelly (D-IN) and
Senator Bill Nelson (D-FL) to the SASC. Now the Republicans have followed suit, naming Senator
Deb Fischer (R-NE), Senator Blunt, Senator Mike Lee (R-UT) and Senator Ted Cruz (R-TX) to
replace former Senator Scott Brown (R-MA), Senator Portman, Senator Collins and Senator John
Cornyn (R-TX) as SASC members. The new GOP members move the SASC Republican caucus to
the right, which combined with the ascension of conservative Senator Jim Inhofe (R-OK) to the
Ranking Member position, could further endanger the Committee’s already-declining bipartisan

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cooperation on missile defense issues, the annual defense authorization bill and other SASC matters.
The committee remains set at a 14-12 Democratic margin.

Contact Information

section: Scott Thompson at 202-457-6110 or sthompson@pattonboggs.com.

Tax

 Deal Reached on the Fiscal Cliff. Vice President Joseph Biden and Senate Minority Leader Mitch
McConnell spearheaded a compromise agreement that, among other things, permanently raised
marginal rates on income more than $400,000 for individuals and $450,000 for joint filers. The deal
makes permanent a maximum 15 percent long-term capital gains and qualified dividends rate for
those with income up to $400,000 for individuals and $450,000 for joint filers; while it is a 20 percent
rate for taxpayers above those thresholds. The agreement also included a two-month delay of the
spending sequester, reinstated PEP and Pease limitations on income above $250,000 for individuals
and $300,000 for joint filers, and extended a host of business, individual and Medicare tax extenders.
Please see the Fiscal Cliff section above, for more detailed coverage of this topic.

 Tax Hearings Next Week. There are no relevant tax hearings scheduled for next week.

Contact Information

section: Joseph Urso at 202-457-5349 or jurso@pattonboggs.com.

Transportation & Infrastructure
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 Priorities for the 113 Congress. With MAP-21 being a two-year bill, the 113 Congress will be
tasked with reauthorizing or extending the nation’s surface transportation programs. Senator Barbara
Boxer (D-CA) will continue to take the lead in the Senate but the House Transportation and
Infrastructure Committee will be under the leadership of incoming Chairman Bill Shuster (R-PA). In
addition to the highway and transit titles in MAP-21, this Congress will also have to address Federal
passenger and freight rail safety programs, which are set to expire at the end of FY2013. Chairman
Shuster published an Op-Ed on January 2 that outlined his priorities for the next two years. Among
those priorities were the reauthorization of the Water Resources Development Act (WRDA) (which
Chairwoman Boxer has also identified as a priority), oversight and proper implementation of MAP-21,

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reauthorizing rail and surface transportation programs, and addressing the financial footing of the
Highway Trust Fund.

 Transportation and Infrastructure Subcommittee Chairs: Chairman Shuster stated this week that
he has not yet made decisions on the Subcommittee Chairs for the Transportation and Infrastructure
Committee. Those announcements could come next week.

 New Starts/Small Starts Final Rule. The Federal Transit Administration (FTA) issued a final rule on
December 27 announcing that in three months it will begin administering the New Starts and Small
Starts programs based on criteria established during the rulemaking process. FTA will undertake a
subsequent rulemaking process for changes in MAP-21 not covered by this Final Rule. FTA is also
accepting comments on Policy Guidance to accompany the Final Rule. A copy of the Final Rule can
be found here: http://www.fta.dot.gov/documents/NSFNRULE.pdf. A copy of the proposed Policy
Guidance can be found here: http://www.fta.dot.gov/documents/NSNOA.pdf

 University Transportation Centers. The Research and Innovative Transportation Administration
(RITA) announced on December 20 that $72.5 million in funding will be available to eligible
institutions of higher education to establish and operate University Transportation Centers (UTCs).
The UTC Program awards grants to universities to conduct transportation research and develop the
next generation of transportation professionals. Selections are anticipated to be announced in mid-
2013. A copy of the NOFA can be accessed here:
http://www.rita.dot.gov/utc/sites/rita.dot.gov.utc/files/2013_grant_solicitation.pdf

 Hurricane Sandy Supplemental Bill. As mentioned in the Budget/Appropriations section of this
week’s Capital Thinking report, the House failed to vote on a Senate-passed emergency disaster
th
appropriations bill before adjourning the 112 Congress. The Senate-passed legislation included
$12.07 billion for the Department of Transportation and $5.3 billion for the Army Corps of Engineers
for recovery, repair and mitigation efforts, and $17 billion for Community Development Block Grants
administered by the Department of Housing and Urban Development. Speaker John Boehner (R-OH)
has pledged that the House will consider emergency appropriations legislation on January 15.

Contact Information

For additional insights about likely policy developments, please feel free to contact the authors of this
section: Jared Fleisher at 202-457-6341 or jfleisher@pattonboggs.com; and Jessica Monahan at 202-
457-6302 or jmonahan@pattonboggs.com.

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Capital Thinking ~ January 7, 2013

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