United States

Capitol corner: 2017 regulatory change


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Our recent set of visits to policymakers in Washington D.C. have provided fresh information on how policy will impact the middle market that we want to pass along to our clients. The following is our impression on the direction of policy and the probability of substantial reforms being passed in 2017.

Infrastructure: About face by Trump administration implies it’s a 2018 or 2019 event

The Trump administration has directly moved away from a framework organized around public-private experiments in financing infrastructure modernization that was associated with the Heritage Foundation, a conservative think tank. Instead, the administration is moving toward a traditional federally sponsored financing using the Transportation Infrastructure Finance and Innovation Act (TIFIA) and the Rail Infrastructure Finance and Innovation Act (RIFIA) which are both subagencies inside the Department of Transportation. In our estimation, the Trump administration will attempt to increase funding via TIFIA and RIFIA to use them as de-facto infrastructure banks inside the federal government.

Based on our discussions with individuals on the relevant committees, the goal is funding about $200 billion that can be leveraged up to meet the $1 trillion funding goal of the administration. Given the significant damage in Texas, Florida, Puerto Rico and the Virgin Islands, there is going to need to be an additional source of funds to finance rebuilding. The price of any bipartisan supported legislation will likely revolve around lifting the national gasoline tax for the first time since 1993. Increasing the gasoline tax from 18.4 cents to 92 cents phased in over five years would bring in an additional $176 billion in the final year of the phase-in period which would almost fully fund the seed capital for the infrastructure banks. While there is an opportunity to tie infrastructure modernization funding to the rebuilding and reconstruction following the three hurricanes, right now GOP is reeling from its second failed attempt at health care reform and focused on tax cuts so infrastructure spending may be a late 2018 or 2019 priority.

Health care: Groundhog Day and why this is not going away

The second attempt at health reform died in the U.S. Senate recently dealing the GOP a major policy setback. This does not mean that health care policy is dead, nor does it mean that attempts to repeal and replace the 2010 Affordable Care Act (ACA) have ceased. In the near term, the Congress and the administration will have to reauthorize the Children’s Health Insurance Program which provides care for children of poor families and women’s pregnancy in many states as part of the fiscal year 2018 budget. In addition, should repeal and replace not happen in the near-term, there will need to be an increase in subsides to large insurance companies to shore up the health care exchanges around the economy and states.

That being said, legislative writers in both chambers plan to put into fiscal year 2018 legislation instructions that permit the use of the fiscal year 2017 reconciliation rules in the upcoming fiscal year to fully repeal and replace 2010 ACA. Thus, the political imperative of repealing the ACA will not fade from the public debate and economic implications that come with regulatory oversight of roughly 20 percent of the U.S. economy. From a purely political point of view, the GOP will attempt again and again to repeal the ACA prior to the 2018 midterm election. 

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