Policy Updates: EPA's Pruitt Sends Letter to Senators

Posted on 10/20/2017 6:30 AM

Senate clears budget resolution | Tillerson on China | USDA nominees | Lighthizer on trade | RFS lawsuits | Pruitt responds to senators | Disaster aid | Food for Peace shipments | Markets

Senate adopted a fiscal 2018 budget resolution with a key eleventh-hour amendment. The measure (HConRes 71) cleared by a vote of 51-49 at around 9:30 p.m. ET Thursday after a vote-a-rama that started mid-afternoon. The lone senator from either party to break partisan ranks was Sen. Rand Paul (R-Ky.), who complained the budget plan evaded a statutory cap on defense spending.

Of note, the Senate adopted, 52-48, an amendment by Budget Chairman Michael Enzi (R-Wyo.) aimed at making the measure acceptable enough to the House to avoid a conference and speed up consideration of a tax overhaul. The House would still need to adopt the same version of the budget for it to be finalized, which could be done next week. That would pave the way for the Senate to pass a tax overhaul with a simple majority.

The amendment modifies the House-passed budget resolution, jettisoning reconciliation instructions aimed at getting $203 billion in mandatory spending cuts and replacing the House directive for a deficit-neutral tax cut with one that could add up to $1.5 trillion to the deficit over 10 years.

As for tax reform, Republicans said they are on track to approve a tax package by early 2018, especially with the Senate passing a budget blueprint that would protect a $1.5 trillion tax cut from a Democratic filibuster. The resolution now goes to the House, which could take it up as soon as next week.

Sec. of State Tillerson: U.S. has economic weapons to press China on trade: WSJ. U.S. Secretary of State Rex Tillerson is warning China that the U.S. could use an array of economic "weapons" to push China on trade and South China Sea issues. “We can do this one of two ways,” Tillerson told the Wall Street Journal (WSJ) in an interview. "We can do it cooperatively and collaboratively, or we can do it by taking actions and letting you react to that." As for the South China Sea issues, Tillerson said they want to find common ground with for conduct in the region, noting other countries "are guilty of having done the same thing to a lesser extent” as China. As for overall U.S. China relations, Tillerson said frankly, "Look, some things have gotten out of whack. We’ve got to address them.” Link to article.

Two USDA nominees were reported out by the Senate Ag panel by voice vote: Bill Northey for Farm and Foreign Agricultural Services undersecretary and Gregory Ibach for Marketing and Regulatory Programs undersecretary.

A glitch. Senate Ag Chairman Pat Roberts (R-Kan.) and ranking member Debbie Stabenow (D-Mich.) wrote to USDA Secretary Sonny Perdue to outline the need for a legislative fix to a discrepancy surrounding the title that Northey would hold if confirmed to a USDA undersecretary post, as most expect. When the White House announced Northey's selection, it listed his title as undersecretary for farm production and conservation, which reflects the role the current Iowa agriculture secretary would play in Perdue's reorganized USDA. But when Northey and Ibach appeared before Senate Ag lawmakers for a confirmation hearing on Oct. 5, Northey was listed as the pick for undersecretary for farm and foreign agricultural services, the former title for the section that is being revamped. The glitch: the foreign agricultural services part conflicts with the new trade mission area led by Ted McKinney, the recently confirmed undersecretary for trade and foreign agricultural affairs. “We recognize that these two provisions and duties may contribute to the confusion surrounding this nomination and the mission area that it oversees,” Roberts and Stabenow wrote. USDA downplayed the development. "Secretary Perdue has said before that he does not worry about nomenclature and titles,” said a USDA spokesperson. “Secretary Perdue is about getting the work done, and he is excited to get Bill Northey on board as soon as possible to support farmers and ranchers, and help with hurricane response.”

Roberts added, "To be clear, there's no question with either of these nominees' qualifications, and the letter should not slow down this process."

Sam Clovis, the controversial undersecretary nominee for USDA research and science programs, could get a hearing next week before the Senate Ag Committee, said panel chairman Pat Roberts (R-Kan.). "Hopefully, we can get that done next week," Roberts said. Asked if that meant a hearing could be held next week, he replied: "That would be my hope." Roberts added that his committee has all of Clovis' written testimony and is planning to meet with both Clovis and Stephen Vaden, the nominee for USDA chief counsel.

Sen. Roberts: USTR Lighthizer wants to boost Mexico, Canada access for U.S. ag goods. U.S. Trade Representative (USTR) Robert Lighthizer wants to boost access for U.S. agricultural goods in Mexico and Canada as a way to help lower the U.S. trade deficit with both countries, according to Senate Agriculture Committee Chairman Pat Roberts (R-Kan.). "Mr. Lighthizer, when I spoke to him today, indicated the best way for our good trading partners to buy down the deficit is to buy U.S. agricultural products," Roberts said. "He made that very clear and will continue to make that clear."

The comments came as Senate approval of the nomination of Gregg Doud to serve as the chief U.S. ag negotiator (at the USTR office) is still pending. Roberts said there are no issues with Doud's nomination as it is a matter of how "everything is stacked up." As for the concerns in U/S/ agriculture about trade, Roberts said, "Bob assured me he knows full well about the value of that,” as well as the situation regarding “farm prices across the board."

Trump's apparent RFS intervention will mean lawsuits. President Donald Trump’s reported order to the EPA to sustain biofuel volumes in the Renewable Fuel Standard (RFS) may violate the Administrative Procedure Act, opening the policy to lawsuits, according to Congressional Quarterly (CQ), citing legal experts and advocates who oppose the plan. The Sierra Club filed a lawsuit in federal district court Thursday alleging EPA has failed to conduct required environmental-impact and air-quality analyses for the RFS.

The Administrative Procedure Act prohibits preempting the outcome of a rule when it is still in process. While the president can issue directives to federal agencies, for the EPA to follow Trump’s orders, it would have to go through the entire administrative process, which includes proposing a rule and allowing for a public comment period.

Many in petroleum industry upset. The prospect of the president directly injecting himself into the issue before the final rule is released has caught the ire of the petroleum industry.

Background. On Wednesday, after a phone call between Trump and Iowa Gov. Kim Reynolds, Bloomberg reported, citing unnamed sources, that the White House had directed the EPA not to lower the amount of biofuels mandated under the agency's annually revised standard. Neither the White House nor Reynold’s office has verified that reporting.

Sen. Joni Ernst (R-Iowa) has reportedly demanded assurances from the Trump administration about biofuels, and wants guarantees "either in writing or a public announcement," according to Politico. Ernst, a member of the Senate Environment and Public Works Committee, where Republicans have just one more vote than Democrats, on Wednesday held up votes for EPA nominees over her concerns with the agency’s RFS proposals. Tammy Duckworth , D-Ill., a strong RFS supporter, also helped delay the vote over issues that included the biofuel policy. One of the issues, sources advise, could be having EPA administratively announce year-round use of E15 ethanol blends — see next item.

EPA's Pruitt makes several RFS commitments to senators. Several commitments on actions under the Renewable Fuel Standard (RFS) have been made by Environmental Protection Agency (EPA) Administrator Scott Pruitt, including on the point of obligation under the program, mandate levels, E15 and making exported biofuels eligible to show compliance with RFS mandates. In a letter to seven Senators (link), Pruitt laid out several policy pledges on issues that have been raised by lawmakers backing biofuels.

  • Point of obligation: A petition to shift the RFS point of obligation to blenders from refiners and importers has been reviewed, Pruitt said, and "the record demonstrates that granting that petition would not be appropriate." He told lawmakers he has now directed staff to "finalize this decision within 30 days."

Comments: All indications have been that EPA had already made this decision but has yet to announce it publicly. This assurance from Pruitt would appear to set the stage for the decision to be announced before the Nov. 30 deadline for the final RFS mandate levels.

  • Proposed Renewable Volume Obligations (RVO): EPA will meet the requirements of law to issue a final RVO rule by November 30, Pruitt stated. While the final process is ongoing in determining the final RVO rule, Pruitt said "preliminary analysis suggests that all of the final RVOs should be set at amounts that are equal to or greater than the proposed amounts, including at least 2.1 billion gallons for biomass-based diesel in 2018 and 2019."

Comments: The comment period closed October 19 on a proposal from EPA to lower the biomass-based diesel levels for 2018 and 2019 and thus the overall RVO levels, so this pledge would indicate that possibility is now off the table.

  • Year-round E15: Lawmakers have been pushing EPA for a nationwide Reid Vapor Pressure (RVP) waiver that would allow year-round sales of E15. Pruitt noted he has directed the agency to "actively explore whether it possesses the legal authority to issue such a waiver." He called on lawmakers to work with the agency on the "important issue."

Comments: EPA under prior administrations has maintained they do not have the authority to grant the RVP waiver for E15 and this would appear to still be the case since Pruitt is requesting lawmakers' help in addressing the matter.

  • Exported biofuel eligibility for RFS compliance: One possibility that was presented to EPA was to make exported ethanol count toward RFS compliance. Currently, when ethanol is exported, the Renewable Identification Numbers (RINs) are no longer valid to count toward RFS compliance. "EPA has not taken any formal action to propose this idea, nor will EPA pursue regulations," Pruitt said of the effort that was touted as a way to stabilize compliance costs.

Comments: Lawmakers appear to have headed off this potential change in US biofuel policy before it made it too far down the regulatory pathway.

Pruitt comments. "I reiterate my commitment to you and your constituents to act consistent with the text and spirit of the RFS," Pruitt said. "I take seriously my responsibility to do so in an open and transparent manner that advances the full potential of this program as envisioned by Congress, rural America and the President of the United States."

Reaction. This would appear to put to rest several issues that have built up on biofuel policy. "I am appreciative of Administrator Pruitt's pledges to rural America, and I will continue to work collaboratively with the EPA going forward on this and other issues," Sen. Joni Ernst (R-Iowa) said in a statement after releasing the EPA letter. Ernst had previously indicated she was not yet willing to support EPA air nominee Bill Wehrum but all indications are this should shift her stance and allow the nomination to move ahead. The Senate Environment and Public Works Committee this week postponed a vote on the nomination of Wehrum and others for posts at EPA as Ernst had not signaled her support, putting the nomination in jeopardy since Republicans hold a one-seat advantage on the panel.

A $36.5 billion disaster aid package could pass the Senate early next week. Senate Majority Leader Mitch McConnell (R-Ky.) filed cloture on a motion to concur with the House-passed $36.5 billion disaster aid package (HR 2266), setting up a vote Monday on limiting debate. The Senate could clear the bill as early as Tuesday.

Still more aid ahead. Majority Whip John Cornyn (R-Texas) said he received direct assurances from President Donald Trump that Texas' needs would be more fully addressed in a third supplemental aid request, to be submitted to Congress next month. But Sen. Marco Rubio (R-Fla.) said Puerto Rico might not be able to wait that long. After meeting with the territory's governor, Rubio said Puerto Rico's government was on the verge of shutting down in the next 30 to 45 days.

Sen. Corker hits shipping interests re: Food for Peace program. Senate Foreign Relations Chairman Bob Corker (R-Tenn.) said the time has come to demand long-sought reforms to the U.S. Food for Peace program in next year’s farm bill, according to CQ. Corker has previously called for relaxing the requirement that U.S.-purchased food aid be shipped on U.S.-flagged vessels. Some analysts say that requirement leads to the annual waste of hundreds of millions of dollars that could otherwise be spent feeding the hungry.

Because of these ridiculous, utterly ridiculous requirements, only 35 to 40 cents of each dollar is used to provide food to people who are starving,” Corker said at a Thursday committee hearing he convened to discuss modernizing the Food for Peace program. “There are few areas of government where we can have more impact on lives without additional resources than by modernizing the Food for Peace program.”

Corker said $300 million could be freed up and used to feed as many as 9.5 million more people if Congress changes the rules that require nearly all food assistance be bought almost entirely from U.S. farmers and half of all nutrition aid be transported on U.S.-flagged vessels. Only 0.1% of U.S. agriculture exports go to food aid, Corker said, adding that in his experience American farmers are sympathetic to arguments for lifting the Food for Peace restrictions.

Background. Food for Peace is administered by the U.S. Agency for International Development (USAID) but funded through USDA and thus falls under the authorization of the multi-year farm bill produced by the Senate and House Agriculture committees. The merchant marine argue that maintaining the requirement that 50% of all U.S. food aid shipments be transported on American private vessels keeps commercial transport ships in business so they can provide sealift for the U.S. military in the event of conflict.

Corker said just four ships, owned by two companies, overwhelmingly dominate U.S. food aid shipping contracts and of those vessels, only one is suited for transporting military equipment.

Facts and figures. Matthew Nims, acting director of USAID’s Food for Peace Office, testified that the shipping routes used by U.S. vessels are not well-matched to the regions that need food so it takes longer to get assistance to those in need. In fiscal 2016, it cost the government $135 per metric ton to ship U.S. food aid on U.S.-flagged vessels, compared to only $65 per ton transported on a foreign-flagged ship, Nims said. “It cost substantially more, compared to using foreign-flagged vessels,” he said. “Cargo preference requirements mean we pay millions more for ocean freight.”

Senators also criticized the practice of "monetization," which provides charities and non-governmental organizations with U.S.-sourced agriculture commodities that they then sell to raise funds for their economic development programs abroad. Critics said it often leads to the flooding of local markets with American exports, putting out of business the very farmers who are needed if developing countries are to ever achieve food sustainability.

Nims agreed with much of the criticism. “The biggest detriment is that we lose 25 cents on the dollar,” he said. “NGOs traditionally are not commodity brokers and it takes a specialized skill to do this effectively.”

The Trump administration proposed cutting the Food for Peace program entirely in its fiscal 2018 budget request. The program is currently funded at $1.5 billion plus an additional $134 million for emergency famine relief. The Senate’s fiscal 2018 agriculture spending bill (S 1603) would maintain current funding levels while the House’s version (HR 3268) would cut Food for Peace by $200 million.

Other items of note:

  • North Korea. National Security Adviser Lt. Gen. H.R. McMaster said the U.S. is "running out of time" in using sanctions to stop North Korea from becoming capable of attacking the U.S. with nuclear weapons. The U.S. needs "extraordinary" cooperation with other countries to stop Pyongyang, he said. Meanwhile, Secretary of State Rex Tillerson signaled the Trump administration's growing impatience with China on issues from North Korea to trade, saying now's the time to go public with concerns that the U.S. has raised privately with the country's leaders for months. North Korea is likely just "months away" from being capable of striking the U.S. with a nuclear missile, CIA Director Mike Pompeo warned at a forum in Washington, stating that he's "deeply worried."
  • Fed Governor Jerome Powell is the leading candidate to become the chair of the U.S. Federal Reserve after President Trump concluded a series of meetings with five finalists Thursday, three administration sources told Politico. Powell has been heavily favored by Treasury Secretary Steven Mnuchin, who is leading the search for Fed chair, and is seen as a safe bet who would not veer much from current Fed policy. Administration officials cautioned that Trump has not made a final decision.
  • President Trump will address Republican senators Tuesday at their weekly policy lunch, after receiving an invite from GOP Policy Chairman John Barrasso (R-Wyo.). The meeting will be a first for the president, although he did host the GOP caucus at the White House earlier this year.
  • Infrastructure funding linkage with tax reform. Senate GOP Conference Chairman John Thune (R-S.D.) said he had always been supportive of linking a major infrastructure package to a tax overhaul as a way to win Democratic support.
  • Another tax reform linkage: minimum wage boost. Sen. Lindsey Graham (R-S.C.) said he would support including an increase to the minimum wage in the pending GOP tax overhaul as a way to bring Democrats onboard. "If you add a minimum wage component to it, I think it will make it more attractive," Graham said.
  • The Mexican Auto Industry Association has rejected U.S. proposals to increase North American content for autos produced in the region and require, under a new NAFTA deal, that half of all content come from the U.S. "Our position is to not touch the rules of origin that have allowed this sector to be successful in the three countries," AMIA President Eduardo Solis told an event in Mexico City.
  • Law firm Haynes and Boone LLP released a new report, called the NAFTA Renegotiation Monitor, that tracks more than 30 different issues and where the sides stand on various points being discussed. It also considers the prospects for resolution. Link.
  • Dairy and the TPP. Former Canadian trade minister Ed Fast said the U.S. tried and failed in its demand that Canada give up supply management as a condition for joining the Trans-Pacific Partnership (TPP) agreement, of which President Trump has withdrawn from the U.S. participating.

Markets. The dollar climbed and Treasuries fell as the move increased optimism that tax reform plans — which would favor businesses — have a better chance of becoming law. The 10-year Treasury yield was at 2.361%, and gold was lower.

Investors pulled roughly a net $36 billion out of U.S. stock mutual and exchange-traded funds in the third quarter, according to EPFR Global. Overall in 2017, more money has flowed out of such funds than has flowed in, EPFR data show, even as the Dow has climbed to 51 fresh highs this year. A surge in stock buybacks and growing inflows from foreign investors and sovereign-wealth funds helped offset outflows from U.S. stock funds. However, stock mutual funds and ETFs overall attracted $5.4 billion in the week ended Oct. 18, while emerging markets pulled in $2.3 billion, the most cash since March, according to Thomson Reuters' Lipper research unit.

Americans’ credit card debt is again on the rise. The amount of debt owed by American consumers, which receded in the wake of the financial crisis, is again on the rise. Outstanding credit card debt — the total balances that customers roll from month to month — hit a record $1 trillion this year, according to the Federal Reserve. The number of Americans with at least one credit card has reached 171 million, the highest level in more than a decade, according to TransUnion, a credit-reporting company. In May, total household debt levels hit a post-recession peak of $12.7 trillion.


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