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With the resignation of recently replaced Federal Energy Regulatory Commission (FERC) Chairman Norman Bay effective February 3rd, the five-member regulatory body tasked with a key role in the permitting process of interstate energy infrastructure projects, and the regulation of the transmission and sale of electricity, has been left with only two commissioners and thus without a quorum. These vacancies mean the agency cannot conduct business and all decisions must, effectively, be held in limbo until President Trump can fill at least one of the three open seats on the commission. 

• Can Staff Fill The Void? In the brief period between Commissioner Bay announcing his resignation and his official departure, the Commission attempted to rule on several key items on their docket. But, Acting FERC Chair Cheryl LaFleur also sought to limit the damage to the energy sector that could be caused by FERC’s paralyzed status by elevating and expanding the authority of the agency’s staff. Such a measure was considered when FERC faced the possibility of a loss of quorum in 1993, but the scenario was avoided and staff authority remained unchanged. While this step may help in some respects, Commission staff will likely be cautious as to what decisions they make and avoid any actions that could spur later controversy or court action. This situation means FERC’s consideration of its most important matters will likely remain unaddressed even with expanded staff authority.
• Energy Infrastructure Atrophy: One such duty that staff will likely be unable to deal with is substantive decisions on infrastructure projects, which will prevent any progress on new hydroelectric and natural gas storage and pipeline projects. Several pipelines had been seeking FERC approval now so they could begin tree-clearing and construction processes this spring. But, projects like Natural Fuel’s Northern Access pipeline, the PennEast pipeline, and Spectra’s Nexus pipeline will now likely need to wait for a new FERC commissioner to receive the necessary certification. FERC’s inability to move these project forward cuts into the billions of dollars riding on their completion and brings to a screeching halt the new Administration’s push to expand new domestic energy infrastructure.
• No Answers On Nuclear Subsidies: FERC’s lack of a quorum will also impact the pending decision regarding market rules addressing subsidies of aging nuclear power plants. The Electric Power Supply Association has filed two separate complaints requesting the Commission step in to handle multiple spring auctions. FERC’s ruling on these issues will be crucial in either legitimizing or seriously curtailing state subsidies that the nuclear power industry consider essential for them to remain competitive with natural gas and other renewable energy sources.

President Trump has yet to name any nominees to fill the three open seats on the Commission, and while some names have been floated around the Beltway, nothing is official and decisions on these major energy sector policies will remain delayed for the foreseeable future.

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CFPB TEXTING TROUBLE
The Cause of Action Institute, an independent watchdog group, recently raised questions about whether Consumer Financial Protection Bureau Director Richard Cordray may have violated federal open records laws by failing to properly archive work-related text messages on his personal cell phone. The issue arose when these text messages were not revealed until multiple follow ups to a Freedom of Information Act request uncovered them. Further reports showed the uncovered text messages also included potentially troubling ties between the CFPB chief and Democratic donors and lobbyists. This ethics challenge comes as the Trump Administration, Capitol Hill Republicans, and other CFPB critics are looking for remove the Obama-appointed Cordray from his position prior to the expiration of his term in July 2018. It also shows that what is originally provided by government agencies in response to public records requests should not be taken at face value as everything that’s truly available.

DEMOCRATS’ DATA-DRIVEN DESTRUCTION
Long-time Democratic strategist Dave Gold has taken his party’s campaign experts to task in an op-ed attributing his party’s recent failed election cycles to an obsession with “data-driven” campaigns at the expense of focusing on the most effective ways to communicate with human beings through emotional storytelling. Gold argues strongly that any successful campaign must be rooted in building an effective narrative and telling stories that are framed within that narrative that connect with voters. While Gold’s advice is directed at Democrats, it is easily applied to anyone seeking to influence the electorate and should be taken to heart anytime someone attempts to breakdown the art of influence into a simple algorithm.

GOVERNMENT ACCOUNTABILITY IN THE TRUMP ERA
When the Trump transition team requested information from the Department of Energy on what work they and their contractors had done on climate change issues, it touched off a firestorm of criticisms. But Henry Miller, a Hoover Institute fellow for Scientific Philosophy and Public Policy, argues that the underlying principle of the incoming Administration’s request – to know what the federal bureaucracy is working on, who is working on it, and when they’re working on it – is entirely valid. His argument points to bureaucracies’ many examples of corruption and incompetence at VA hospitals, the FDA, and the EPA, suggesting greater accountability is the solution to correct these problems. Miller admits the task will be challenging and the Trump Administration will need to walk the line between appropriate accountability while not engaging in arbitrary punitive actions. But done correctly, accountability in the federal government can make for better government services for citizens.

BREAKING OUT OF THE CYCLE OF OUTRAGE
Huffington Post founder Arianna Huffington recently took to Medium to discuss how Americans can break out of the perpetual state of outrage many continue to feel over every decision or action taken by the Trump Administration. Huffington points out that those who want to genuinely oppose the Administration’s policies are better served remaining calm and rationally organizing their opposition while focusing their attention to more meaningful action if they truly cannot disengage from the news. Agree or disagree with the President’s or other elected official’s policies and actions, no good can come for either side while suffering the physical and mental toll of a two, four, or eight year perpetual state of outrage.

LABOR’S GRIP ON DEMS
Last week, Senate Democrats staged an aggressive, all-night effort to block the confirmation of President Trump’s nominee for Secretary of Education, Betsy DeVos. The move was confusing to some, considering the fairly limited scope and power assigned to the Department of Education. But, it highlighted the firm grip national labor unions, particularly public employee unions like those representing teachers, have over the modern Democratic Party. Many Democratic Senators appear so beholden to groups like the National Education Association and the American Federation of Teachers that they perform stunning about-faces on DeVos’ key policy issue of school choice. For example, New Jersey Senator Corey Booker has previously been a vocal proponent of school choice and even sat on the board of the American Federation for Children, which was chaired by DeVos. But, Booker chose to vote against his former colleague’s confirmation, a sign that he’s more focused on his political future than being consistent with his past. The fight over DeVos is only the first major obstruction orchestrated by big labor unions. Labor Secretary nominee Andrew Puzder’s stalled confirmation also illustrates that any stories of waning union influence inside the Democratic Party are much exaggerated, and that big labor still holds powerful purse strings inside the Democratic establishment.

Mark Your Calendar

Thursday, February 23 – Sunday, February 26: DNC’s Winter Meeting where a new Democratic Party Chair will be elected

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The new Administration has used many of its first days promulgating several major executive actions, offering up numerous photo ops of President Trump surrounded by his senior staff signing these documents in the Oval Office. The problem is that these executive actions appear to be written as broad statements and souped-up press releases – not orders that have the force of law – to push a narrative that the President is taking action on his campaign promises while appearing as presidential as possible.

Beyond whatever debate there may be on the substance of these policies, the hasty preparation and lack of appropriate staffing of these executive actions are causing long term problems for the Administration:

• Lack Of Coordination Outside Of White House = Implementation Chaos: It appears none of the federal agencies and departments impacted by these executive actions are being consulted prior to their drafting and release, which leaves those agencies and departments, teeming with civil servants that may not be thrilled with the policy directives to begin with, struggling to quickly understand and comply with these orders. This leads to things like the confusion over whether the President’s order on refugees and immigration applied to U.S. green card holders.
• Lack Of Coordination Inside The White House = Unforced Errors And A Poorly Served President. The executive orders are reportedly being drafted by senior White House advisor for policy Steven Miller and White House chief strategist Steve Bannon, both of whom were key messaging strategists on the campaign. But, other senior staff with important roles to ensure the success of presidential actions are not being included in the process, leading to unforced errors. Miller and Bannon’s ownership of the executive actions suggests the measures are being used more for publicity than policy. And while these actions may win them halleluiahs from the choir, they undermine the President’s long-term objectives.
• Lack Of Buy-In From Capitol Hill = Frayed Relations On Other Agenda Items: The White House’s poor execution of the President’s executive action on immigration and refugees was also due to their failure to alert Congressional leadership of the hastily drafted and released executive actions. This cost them a smooth roll-out of the policy as Congressional Republicans were caught flat-footed by the measure and were not coordinated in their response to the President’s move. Continuing these run-and-gun tactics with regards to executive action will have serious long-term consequences, which will manifest as the President seeks support on the Hill for his nominees and policy agenda. Even if key Republicans in Congress are not consulted on the content of executive actions, failing to loop them in prior to the document’s release leads to poor messaging overall. The President just announced a Supreme Court nominee and a litany of other nominations he will need help from Congressional leadership to shepherd through, and this stumble in the relationship between either end of Pennsylvania Avenue could put constraints on that help.

Executive actions are an important and powerful tool of the presidency. But the new Administration seems to be using them more casually than has previously been seen. Whether this is intentional or not, it seems to have created more controversy and confusion than it is worth. It remains to be seen whether or not these tactics will change in coming weeks as the freshly minted White House staff gets their bearings.

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HEDGE FUNDS FOLLOW THE JETS, LITERALLY
Hundreds of millions of dollars were made last week by several hedge funds after pharmaceutical giant Johnson & Johnson agreed to buy Actelion Ltd., a Swiss-based biopharmaceutical company. Hedge funds are known for tracking all kinds of information to inform their investments; in this case it came down to tracking the flight history of Johnson & Johnson’s corporate jet, which spent most of the week prior to the deal sitting at an airport near the Actelion headquarters in Basil, Switzerland. The Swiss company was already considered one of the top-five long bets for hedge funds speculating on the success or failure of mergers and acquisitions. But, analysts’ tracking of the J&J Gulfstream jet shows how the creative application of competitive intelligence can lead to windfalls on Wall Street. 

FRENCH ELECTION BLOWN WIDE OPEN
France’s incumbent center-left president Francois Hollande announced late last year he would not seek another term. Now one of the leading candidates in France’s upcoming Presidential election, center-right candidate Francois Fillon, is stumbling badly as he faces criticism over using public funds to employ members of his family while serving as a Senator. With the election set to occur on April 23rd, followed by a runoff to occur May 7th, right-wing nationalist Marine Le Pen appears to be the favorite to win the first round of voting. Fillon had been seen as a likely candidate to defeat Le Pen in the runoff, but he has already declared he will formally drop out of the race if the investigation into this scandal becomes a formal inquiry. Whether Fillon drops out or not, this scandal has almost certainly hurt him in the polls and could leave the French presidential race wide open for another international populist upset. European political observers have pointed out that a Le Pen victory would have dire consequences for the European Union, straining the relationship between Brussels and a key EU leader nation. This situation could have been avoided had Fillon commissioned a vulnerability study to understand the scrutiny that comes with running for higher office.

INDIA’S DEMONETIZATION TROUBLES
In November of last year, the Indian government introduced a demonetization plan recalling existing 500 and 1,000 rupee notes and replacing them with new 500 and 2,000 rupee notes. The subsequent cash shortage brought on by the Indian government’s failure to cycle in new bank notes as they recalled the old, has plunged the nation’s vital manufacturing industry into a drastic slowdown. The manufacturing industry’s reliance on cash currency to pay low wage workers has paralyzed factory owners, likely leading to dwindling consumer confidence in the nation and stunting economic growth. The troubles in the Indian economy have reverberated throughout Asia, as the Indian government’s inability to effectively manage the demonetization process has led to neighbors like Nepal to turn to China for their economic and security matters. For example, Nepal previously sought to stabilize their economy with a purchase of six billion rupees, but with India failing to deliver the currency in recent months, Nepal has turned to China to print and deliver Nepali rupees. While India is still projected to remain one of the fastest growing economies in the world, the short term negative impacts of the demonetization plan can cause geopolitical shifts along with economic ones.

THE DELETE UBER DILEMMA
In the wake of President Trump’s executive order suspending immigration from seven terror-afflicted countries, Uber’s refusal to join an anti-Trump strike policy from New York taxi drivers spurred a sudden and viral #DeleteUber movement. It is not necessarily uncommon for businesses to be boycotted or criticized for their political positions or activities. But efforts to punish businesses for political inaction seems to be a new phenomenon. Uber’s CEO Travis Kalanick eventually criticized the Administration’s policy. But, the situation presented the company with an interesting catch-22: whether to take a political stand against the President in order to satisfy many of their customers’ rage against Trump, or to remain politically neutral in an effort to avoid offending an Administration they will need to work with on a variety of regulatory matters over the next four years. 

THE RUSH TO JUDGE
Liberal activist groups and Democrats have moved quickly to attack President Trump’s Supreme Court nominee, Neil Gorsuch, but in their haste it seems many have written the attacks before checking whether they actually fit the facts of Gorsuch’s record. For instance, the liberal super PAC American Bridge, released a full report in which they claimed Gorsuch was, “a threat to privacy,” for allegedly writing a legal opinion that allowed police to ignore a “no trespassing” sign. In fact, Gorsuch had written a dissenting opinion on the case, arguing in favor of privacy rights. Similarly, the Center for American Progress criticized Gorsuch’s background on criminal justice issues, but missed his 2006 speech on criminal justice reform and his dissenting opinion criticizing a police officer for using excessive force on a high school student. It is no surprise that these groups are picking apart Gorsuch’s record, but considering that he has been listed as a likely pick for months, it is surprising that the messaging wasn’t better researched beforehand.

Mark Your Calendar

Thursday, February 23 – Sunday, February 26: DNC’s Winter Meeting where a new Democratic Party Chair will be elected

Despite all of the process stories claiming there is chaos between the incoming administration and Hill Republicans, the fact remains that the stars are aligned for comprehensive tax reform to happen this year. The White House and both chambers of Congress are solidly in Republican hands. House Speaker Paul Ryan has long had has a detailed tax reform plan. He has an excellent working relationship with incoming White House Chief of Staff and fellow Wisconsinite Reince Priebus, who has been a close friend of Ryan’s for two decades. This relationship could serve as the catalyst for ironing out key areas of overlap and differences with President-elect Trump. And, House Ways and Means Committee Chairman Kevin Brady Rep. Kevin Brady (R-TX) has his staff doing the heavy lifting of writing the legislation. As part of The Administration Project at Delve, we’ve been closely watching Trump’s nominees in key cabinet positions, including Steve Mnuchin for Treasury Secretary and Wilbur Ross Commerce Secretary, both of whom stand ready to sell any tax reform package to businesses on Wall Street and Main Street.

But, the direction, timing, and shape of comprehensive tax reform depend on whether or not some level of unity can be achieved inter-party and intra-party. Here are the three political items you need to watch within the tax reform debate as we transition into the Trump administration:

Dancing With Chuck: Both Trump and Congressional leadership have indicated that they would like to make comprehensive tax reform a bipartisan effort, even though Hill Republicans have reserved the option of pushing legislation through the budget reconciliation process. In order to cross a filibuster-proof 60-vote threshold in the Senate, the President-elect will need to work with Senate Minority Leader Chuck Schumer to build the necessary Democratic support.

For his part, Schumer already has said he’s willing to work with Trump. But there are three items necessary for him to get on board: (1) funding and passage of an infrastructure bill that includes an acceptable level of new federal spending, not just private sector tax credits or other investment incentives, (2) a reduced corporate tax rate to bring home to his New York donors and constituents, and (3) targeted tax cuts for the poor and middle class to allay his more liberal colleagues’ concerns regarding legislation that will inevitably include tax cuts for individuals and families higher up on the income scale.

Looking Back At Trump’s Original Tax Plan: A good indication of how much Trump is willing to negotiate with Congress on finalizing the details of a legislative package is the evolution of his own tax reform plan during the past year and a half of his campaign. I had the opportunity to help draft the President-elect’s original tax plan released in September 2015. The proposal focused on several key objectives: (1) real tax relief for middle class Americans, (2) simplifying the code to reduce tax preparation burdens on families and job creators, and (3) growing our economy and creating jobs by discouraging corporate inversions and increasing U.S. global competitiveness. Those objectives align well with Speaker Ryan’s tax reform goals. And Trump’s revised plan from last fall resembles Speaker Ryan’s even more closely. This alignment shows why tax reform will get done in the end, despite claims of division on some of the detailed provisions, such as …

Border Battle: As part of comprehensive tax reform legislation, Chairman Brady has constructed and promoted a plan creating a territorial, border adjustable, destination-based consumption tax where imports are taxed at a rate around 20 percent while exports are not. In other words, instead of taxing companies for their overseas profits at a rate of 35%, which is happening under the current system, the new plan would only tax companies for those imported goods. Congressional Republicans hope this will encourage companies to move their headquarters back to the U.S., raise revenue, and avoid calling the new border adjustable tax a tariff.

But, Trump has proposed different ideas, like a simple 35% border tax for companies that move overseas, recently telling the Wall Street Journal the House GOP’s border adjustability plan is “too complicated” and claims America could get “adjusted into a bad deal.” Yet, the President-elect recently backtracked his opposition, telling Axios border adjustability is “still on the plate.” How the White House and Congressional leadership attempt to find a middle ground on imports and exports will be critical to how fast legislation can be passed, the amount of revenue reform will produce, and whether the plan can stand the test of a potential World Trade Organization challenge.

While the headlines on tax reform claim there is chaos between the new Congress and the incoming Administration, a Republican close to the process recently told Politico, “The president-elect … and his team are talking to Hill leaders about these issues every single day. And all of our conversations are moving us closer, not apart. Tax reform … is going to be a long process with many ups and downs, and so everyone should take a breather for now and appreciate that we’re working as one team.” Outside of the rhetoric and rumors that always keep Washington on its toes, it’s the players in the room being aligned that will serve as the foundation for legislation that moves through the process. Our analysis of these players is central to The Administration Project at Delve, helping companies and causes separate real insights from the “noise” that clouds issues like tax reform. To learn more, click here.

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Last Monday, the Cour de Justice de la Republique, a French court specifically tasked with ruling on charges against current and former government ministers, ruled that former French finance minister and current International Monetary Fund managing director Christine Lagarde is guilty of misusing public funds, but determined she should face no consequences for her guilt.

This lack of consequences for Lagarde could have been implications for the global political and financial elite she represents.

• The Background: The charges in the current case stem from another case that dates back to the 1990s. When businessman-turned politician Bernard Tapie joined the French government, he sold his stake in Adidas in an effort to avoid potential conflicts of interest. The French bank Credit Lyonnais handled the €318 million sale to a group of investors that secretly included a subsidiary of the bank itself. A year later the Adidas stake was sold again for €533 million, netting the bank massive profits and defrauding Tapie. He sued the bank, and because the French government had taken up the failing bank’s liabilities, the eventual verdict awarding Tapie €293 million ended up coming from taxpayers.
• The Charges: The current accusations against Lagarde are that, as French economy minister at the time of the Tapie ruling, she gave him preferential treatment and was negligent in failing to challenge the award of such a large sum of taxpayer funds in the case.
• The Verdict: Monday’s ruling was a bizarre one in its findings and sentencing. The Court found Lagarde guilty of negligence in approving the massive government payout, but despite their capacity to levy a fine of up to €15,000 and sentence her to as much as a year in prison, they sentenced Lagarde to no jail time, levied no fine, and determined that the conviction would not constitute a criminal record. The justification for the lack of punishment was a convoluted combination of references to Lagarde’s good standing and international reputation, and credit for her handling of the 2007-2008 global financial crisis.

The IMF’s board of directors quickly convened a meeting to discuss Lagarde’s future with the organization and determined they would stand by her, despite the ruling. Former Treasury Secretary Lawrence Summers and current Treasury Secretary Jack Lew both voiced their support for Lagarde, and criticized the ruling. With no punishment being handed down and the IMF allowing Lagarde to continue as managing director, this appears to be a strange case of a guilty verdict without any consequence whatsoever for the guilty party. Call it the Lagarde Loophole.

So why does this ruling matter? In both the U.S. and Europe, populists are on the rise thanks to a wave of frustration with a banking sector that many believe caused the global financial crisis of 2008-2009. While that sector seems to have recovered and suffered few consequences, many workers are still struggling and the only power they have is at the ballot box. With France’s presidential election just a few months away, the Lagarde Loophole could become a decisive issue.

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SILICON VALLEY NEEDS A REBOOT
A new year always offers a chance for reflection, and Katherine Boyle of the Silicon Valley venture capital firm General Catalyst, recently argued the tech industry needs it. According to Boyle, the 2016 election exposed a clear disconnect between average America and tech leaders. To solve this problem, she poses three questions: Are tech innovators investing in products made for average Americans? Are they creating products that help unite people of differing viewpoints? And, are tech executives and investors getting out of the Silicon Valley echo chamber? Versions of these questions are worth asking in the Beltway, on Wall Street, and anywhere the globally mobile class gathers.

THE TRUMP EFFECT
Despite predictions of doom and gloom following Donald Trump’s election as president, the financial markets have almost universally responded with upward movement and positive indications for 2017. Since Trump’s election, the market for interest rate futures has suggested that traders are predicting stronger U.S. growth. So has the cost of insurance on corporate debt. The financial markets seem to be betting on Trump’s stewardship of the U.S. economy. That bet makes sense, according to Ray Dalio, chair of the world’s largest hedge fund, who says the market is anticipating a “profound, president-led ideological shift.” As Dalio explains, “This new administration … wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power. The shift … will probably be even more significant than the 1979-82 shift from the socialists to the capitalists in the UK, U.S., and Germany when Margaret Thatcher, Ronald Reagan, and Helmut Kohl came to power.” Considering the global economic expansion that followed that last shift, it is no surprise the markets are bullish on Trump.

UN’S “DISPROPORTIONATE” FOCUS ON ISRAEL
Last week, United Nation’s Secretary-General Ban Ki-moon publicly chastised the organization he leads for its “disproportionate” volume of resolutions against Israel that has “foiled the ability of the UN to fulfill its role effectively.” Ban’s comments come after the UN passed 223 resolutions condemning Israel in the past decade alone. These sentiments were echoed by Israeli Ambassador to the UN, Danny Danon, who commended Ban for admitting “the clear truth” about the UN’s hypocrisy. Ban framed his comments as a warning to incoming UN Secretary-General Antonio Guterres, who will take over the role on January 1st. Though it came in his waning time in power, Ban’s honesty is welcome. Hopefully his successor takes heed, though we won’t hold our breath.

PAY NO ATTENTION TO THE APPOINTMENTS BEHIND THE CURTAIN
The day before President Obama’s last press conference of the year, the White House quietly appointed Dego Adegbile and Catherine Lhamon to six-year terms on the U.S. Civil Rights Commission. The Administration previously attempted to appoint Adebile as head of the Justice Department’s Civil Rights division, but he drew wide criticism from Senators of both parties as well as law enforcement groups due to his defense of a Philadelphia cop-killer and leftist cause celebre. Lhamon also garnered controversy with her key role in the Obama administration’s efforts to mandate transgender bathroom use in public schools and in the now-infamous Rolling Stone article hoax. The long-term appointments are notably aggressive for a lame-duck President, but seem to track with the President’s plan to “run through the tape.” 

WHO FACT CHECKS THE FACT CHECKERS?
In the ongoing struggle to combat “fake” news, Facebook has announced it will now weed out some stories that do not live up to the standards of its deputized “fact checkers.” Facebook claims these fact-checkers will include the experts at the Associated Press, ABC News, PolitiFact, and others. But a recent statistical analysis of PolitiFact data clearly displayed a bias against conservatives, with Republican politicians being fact-checked on a more regular basis than Democrats, thus leading to inaccurate data on who is “telling the truth” more often. This revelation raises serious questions for Facebook’s plan to rely on these fact checkers to flag stories as “disputed.”

IF THEY CAN GET ALONG…
Retiring California Democratic Senator Barbara Boxer offered some advice to fellow Democrats who are having trouble figuring out how to work with President-elect Trump and his new Administration: be honest with each other. Boxer formed this conclusion during her more than three-decade long career on the Hill and specifically from a long-time working relationship with Oklahoma Republican Senator Jim Inhofe. As the two legislators have traded the chairmanship of the Senate Environment and Public Works Committee, they have disagreed on more issues than they’ve agreed on, but Boxer described their relationship saying, “We really like each other. And I think, also, what’s important is we know how strongly we feel when we oppose each other, but we never surprise each other by going around someone’s back and sneaking something into a bill… We would never do that.” We shall see if her Senate colleagues heed her advice and seek to find common ground or if Capitol Hill’s partisan gridlock continues.

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