K Street Braces for Next Round of Budget Sparring

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By Nancy Ognanovich

K Street strategists are bracing for a new round of budget sparring that again appears likely to set industries competing for increasingly limited federal dollars.

After the fiscal year 2017 omnibus appropriations package was signed into law, top strategists in both parties said their work would shift immediately to positioning for the FY 2018 spending bills.

But Washington’s lobbying community has no illusions about whether Congress will send many, if any, of the 2018 bills for President Donald Trump’s signature by the time the $1.1 trillion funding provided by the 2017 omnibus runs out Sept. 30. Instead, they said, lawmakers and aides already have alerted them to the likelihood that the next battle over federal funds will stretch well into the late fall and perhaps into December.

“The ‘new normal’ is you go through a process in June and July, fight a little bit in September, pass an extension at the end of September, and that extension will either be to the middle of November or the end of December,” said Sam Whitehorn, managing director at Signal Group, who cited wins and losses in the recently enacted omnibus. “It’s up to leadership and appropriators to figure out how they want to put pressure on people to get things done, but from the downtown perspective all we can do is work with the process.”

The delays that increasingly mark the annual spending bill process are setting the stage for another potential crisis when the new funds expire, particularly since Trump himself suggested that a “nice government shutdown” might be useful in September to force the type of deal he wants to see in the FY 2018 bills. Some K Street observers said they already have been warned that the final outcome of a protracted fight between Trump and the Congress could be a lengthy stopgap locking in current federal funding levels.

“This was the skirmish,” said former Rep. Jim Moran (D-Va.), now a senior adviser at McDermott Will & Emery, of the recent negotiations that delivered an 11-bill omnibus to bring 2017 to a late close. “The real war is going to be fought in the ’18 bill. Those funding levels may have to stand for 18 months.”

“You got some compromise now,” said Moran, a former “cardinal” on the House Appropriations Committee. “I don’t think the White House and the Republican leaders will be as willing to compromise in the next round.”

A range of industries will feel the impact of a new budget, from defense contractors such as General Dynamics Corp. to transportation companies such as Amtrak and shipping companies such as FedEx.

‘Payday’ in December?

The FY 2017 bills were held over from last December to give Trump more time to weigh in on federal spending. But House Speaker Paul Ryan (R-Wis.) and Senate Majority Leader Mitch McConnell (R-Ky.) were under pressure to wrap up and clear the bills before a stopgap measure funding the government expired April 28.

In a final round of negotiations, appropriators ignored the $18 billion in cuts Trump proposed for domestic programs to pay for more Department of Defense spending. Lawmakers also rejected his demand for $1.5 billion to begin constructing a border wall this year. But appropriators provided billions in defense spending above the overall discretionary cap and also re-shuffled non-defense spending in order to provide the boost in border security funds that Trump also wanted.

Both sides found much to praise in the final deal, but the White House still criticized reports that Democrats fared better, particularly in convincing Republicans to drop some 160 riders in final talks. Office of Management and Budget Director Mick Mulvaney quickly signaled that the White House will push much harder for what it wants in the next round.

The White House will be late in sending its fleshed out budget for next year—aides say they don’t expect to see it any earlier than the week of May 22 and others say markup of the FY 2018 budget resolution could slip to June. But appropriators potentially could use House rules that permit them to start marking up bills after May 15 even in the absence of a budget resolution.

Trump is expected to again propose large defense increases and deep cuts to domestic agencies and programs in his budget. A preview of that budget came when he sent the “skinny” version in March, which proposed cutting agency funding by as much as 30 percent. Overall, Trump wants to force $54 billion in domestic program cuts.

A top Republican aide who did his own tour of duty on K Street said lobbyists shouldn’t necessarily expect the 2018 process to play out as the 2017 talks did. And while the process is starting very late, lawmakers actually will take much more time to consider the bills than they did to close out 2017 work, he said.

“This was a unique, one-time event where—for a variety of factors—in November and December we were taken to late April and there are so many new factors that are going to enter the system between now and Sept. 30—debt limit, questions about the Budget Control Act (BCA), the budget resolution, use of regular order in House and Senate appropriations committees, what moves to the floor and at what levels—that by the time we get to September and the fall and winter conversations about the content and construct of the various appropriations bills, you have no idea whether there are any lessons learned here in April 2017 that can apply in November-December of 2017,” the aide said.

Power of the Purse, Round 2

The GOP aide said the omnibus deal reflected what he said is the “strength and durability” of the annual appropriations process involving top Republicans and Democrats on the House and Senate committees and in the House and Senate leadership.

“The four-corner conversation from beginning to end very much proved out in relation to its negotiating objectives,” the aide said. “So even though you had new players as chairman of House Appropriations and ranking member at Senate Appropriations, they knew what they were about and were very committed to creating an omnibus appropriations package on behalf of Congress. Majority, minority, House, and Senate—I think they delivered pretty strongly.”

But the aide said Mulvaney took command of the issues very quickly and can be expected to push harder in the 2018 round.

“The administration team is very conversant in discretionary appropriations and able to run a multidimensional negotiating process across a trillion-dollar front without a lot of difficulty,” the aide said.

Tom Spulak, chairman of King & Spalding’s government advocacy and public policy group, said K Street also expects Mulvaney to be front and center in this year’s process, beginning with the rollout of the budget in late May. The OMB director championed deep cuts to discretionary programs as a founding member of the House Freedom Caucus.

“Mulvaney will continue to drive the debate,” said Spulak, a former top House aide. “He’s going to drive it hard. But I think he’ll get some pushback and they’ll compromise—not because Democrats want it but Republicans are going to have to push back.”

"[Mulvaney’s] doing what budget directors do—he’s following the line of the administration,” said Spulak, whose firm represents companies that include Reynolds American Inc. and Embraer SA. “He also is following the line of the party. But at the end of the day he doesn’t have to face re-election—Republicans have to face re-election.”

Among other things, Republicans have sharply criticized Trump’s plans to “zero out” or sharply cut State Department programs, health research, early education funding, transportation grants, the Coast Guard and much more. They also have quietly resisted Trump’s demands for border wall money as the process moves forward.

Bipartisan Framework Expires

The difficulties created by the late start on 2018 bills is compounded by the expiration of the two-year bipartisan budget agreement that eased the BCA’s budget caps and provided relief from sequestration. Unless the BCA caps are amended, appropriators may be working with levels that represent significant cuts from the recently enacted bills. The Congressional Budget Office now estimates that the Department of Defense cap will be trimmed by $2.029 billion and the non-defense cap by $3.159 billion in ’18.

Defense hawks including Sen. Lindsey Graham (R-S.C.) are proposing to eliminate sequestration but said it’s not clear whether there are the required 60 votes in the Senate to do so. Many Republicans only want to eliminate sequestration on the defense side but not for non-defense, Moran said.

“I think it’s time to break the sequester, but to do so you would have to cede to Senate Democrats’ demands for parity,” said Moran, who represents Northrop Grumman Corp. and General Dynamics Corp. among other firms.

Minus any deal, House Appropriations Committee Chairman Rodney Frelinghuysen (R-N.J.) and Senate Appropriations Committee Chairman Thad Cochran (R-Miss.) may revert to the model from the George W. Bush administration when DOD, Military Construction and Veterans Affairs, and Homeland Security were given priority as allocations were doled out and non-security bills were slated for flat funding or cuts, others said. That’s the approach Trump took in his “skinny” budget—proposing increases between 6 percent and 9 percent for the three security-related bills.

But that model won’t necessarily result in bills being passed by both chambers this summer and sent to Trump’s desk. An effort to quickly push through another defense bill—possibly with a Pentagon supplemental to get the money Trump was denied in the first round—is expected to be opposed by Senate Democrats without a deal to protect other programs from cuts.

Moran also said many Republicans are opposed to many elements of Trump’s budget—such as money for the border wall and deep cuts in favored programs ranging from the Community Development Block Grant program to the Appalachian Regional Commission.

“I just don’t see him being able to fulfill any of his promises through the appropriations process,” Moran said.

Former Maryland Gov. Robert Ehrlich (R), also now with King & Spalding, said Trump “won’t deal from strength, but also not from weakness” in this year’s process. He said Trump’s approval ratings are likely to hover in the 40 percent range.

With those numbers, Ehrlich added, lawmakers won’t go along with all the president wants.

“I never had those expectations anyway,” said Ehrlich, also a former member of the House. “Some of these members barely dated him anyway. They certainly didn’t marry him.”

Defending Funding, Fight for Riders

The emerging consensus of K Street, however, is that it’s not a given that Congress can resist all the cuts that Trump will propose.

Spulak said the large cuts Trump calls for may result in smaller ones in the next set of appropriations bills.

“You can’t cut to five if you start out with zero—you have to start with 10,” Spulak said.

Congress showed a willingness to trim favored domestic spending bills—such as those for Agriculture, and Transportation and Housing and Urban Development—back from planned levels to shift more money to Homeland Security to fund Trump’s border security upgrades, others said. Trump now wants to cut Transportation by $2.4 billion and eliminate federal support for some of Amtrak’s long-distance train services.

That concerns Ed Hamberger, president and chief executive officer of the Association of American Railroads, which represents the passenger railroad along with freight rail companies such as BNSF Railway Co. and CSX Transportation Inc.

“We want to make sure Amtrak gets continued funding and they put some money into commuter rail,” Hamberger said. “That’s a big concern.”

But Hamberger said the rail industry is also ready to resume its fight to keep “adverse” riders out of next year’s package.

“We want to make sure there are no riders aimed at increasing truck weights,” Hamberger said.

Representatives of Anheuser-Busch InBev NV already have made the rounds of Capitol Hill this spring urging lawmakers to put language into a 2018 package creating a 15-year “pilot program” allowing many states to have heavier commercial vehicles operating on their roads. The proposal calls for six-axle trucks in those states to carry up to 91,000 pounds on those roads—up from 80,000 pounds.

Whitehorn, a former top aide at the Senate Commerce, Science and Transportation Committee whose firm represents FedEx Corp. and many other transportation companies, said work also is resuming on winning language to preempt state laws regulating meal and rest breaks for interstate truck drivers. An effort to include it in the omnibus was rejected in the final round of talks, he said.

Train Wreck Ahead?

But both Hamberger and Whitehorn said they and others expect to have months to work on these and other issues. Neither see many bills advancing before the August recess begins July 29.

“How much time will both committees have to really start marking up? Then they’re gone in August. I think they’ll get a CR [in September]. I think they do a 60-day kind of thing going to Dec. 15,” Hamberger said.

Whitehorn said he’s opposed to resorting to any lengthy CR—continuing resolution—that simply maintains the funding and details of the omnibus just passed.

“Friends on the Hill are not all that encouraging about getting a bill done for FY ’18 either, but everybody’s got to go into the process until it fails,” Whitehorn said. “Our job, our clients’ job, is to just keep pushing what they need, period.”

To contact the reporter on this story: Nancy Ognanovich in Washington at nognanov@bna.com

To contact the editor responsible for this story: Paul Hendrie at pHendrie@bna.com

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