Sergio M. Marxuach

The Big Picture

Election results in the U.S. midterm elections are still coming in as we write this CNE Review but the big picture is fairly clear. The Democrats apparently will lose control of the House but relative to historical standards and expectations set prior to the election, it could have been worse. Republicans picked up 54 House seats against Bill Clinton in 1994 and 63 seats against Barack Obama in 2010. In contrast, according to Politico, the Republican Party’s internal estimates have them gaining anywhere between 7 and 12 seats in the House. Enough to give them a small majority but clearly a weak performance by historical benchmarks and given President Biden’s low approval ratings and the highest inflation rate since the early 1980s.

Ironically, the thin margin will hand a lot of leverage to fringe elements in the Republican Party. A handful of five or six representatives in the House will have the ability to hold hostage any legislation the leadership wants to puts through. The Republican Freedom Caucus in the House has already stated it will “hold hostage” must-pass legislation, for example, to keep the government open or to raise the debt limit.

In addition, according to the Washington Post, while the MAGA crowd had a bad night on Tuesday, at least 145 “Republican election deniers running for the House had won their races as of Wednesday afternoon”. Here is where things get complicated for the presumptive speaker, Kevin McCarthy. The problem with the MAGA crowd is not that they are conservative or uber-Republican. In fact, they are neither in any ideologically meaningful way. Their real problem is that they live in an alternate reality of conspiracy theories and misinformation uploaded to digital platforms by groups affiliated with Russia and China. How do you even begin to negotiate policy issues with someone who denies reality? I guess we will find out in real time pretty soon.

On the other side of the Capitol, contrary to expectations, the Democrats have managed to scratch out victories in Arizona and Nevada. In Georgia, Raphael Warnock with 49.4% of the vote, is slightly ahead of the Republican challenger, Herschel Walker, who has 48.5% with more than 95% of ballots counted. A third-party candidate has 2.1%. The problem is that Georgia law requires a runoff election if no candidate gets more than 50% of the vote. Given that Warnock is about half a percentage point below that threshold, there will be a second-round election in Georgia on December 6.

So, right now the Democrats control 50 Senate seats and the Republicans 49. That margin is enough to control the Senate, given that Vice President Harris would vote to break any ties in favor of the Democrats. It would be a mistake, though, to think that the race in Georgia doesn’t matter. In fact, given how close the midterms have been and the arcane rules of the Senate, it would make a significant difference.

If the Democrats manage to reelect Sen. Warnock the 51-49 margin will allow them to have clear majorities in the membership of Senate committees, as opposed to splitting them 50/50 with Republicans, which has been the case for the last two years. This would make it easier to push through appointments and legislation because any ties at the committee level are resolved by discharging the matter to the floor. Presumably, that would not be the case if the Democrats have a “clean” majority. It would also significantly decrease the leverage that more conservative Democrats, like Senators Manchin and Sinema, have exercised over the last two years, because Majority Leader Schumer would have the flexibility of losing at least one vote and still be able to move legislation.

In the final analysis, though, a two-vote majority is not a mandate and the slim margin will certainly keep Sen. Schumer busy holding Democrats in line to support the Biden administration’s legislative priorities, but it certainly makes his job just slightly easier.

The Lame Duck Session

In the meantime, Congress is scheduled to return to Washington on November 14 for a month-long lame duck session. Along with conducting leadership elections and determining committee assignments for the 118th Congress, a handful of important legislative priorities will be considered.

Government Funding

The most pressing issue for the returning Congress is passing a bill to fund the federal government for the rest of FY23. Currently, government funding expires on December 16. To avoid a shutdown, Democratic leadership is likely to push a massive omnibus spending package by the end of the year. As has been the case in recent years, this will be the legislative vehicle for all sorts of year-end items legislators want to move before adjourning, a “Christmas Tree” kind of legislation containing all sorts of unrelated items in one bill. Some Republicans are likely to object to the omnibus approach, but it appears that appropriators on both sides of the aisle agree on pushing it through.

Congress is also expected to take up an emergency appropriations supplemental bill during the lame duck session. This legislation will include funding supporting Ukraine and providing assistance to communities impacted by natural disasters.

Healthcare

Several healthcare provisions also expire on December 16. According to analysts at the Prime Policy Group, “among these are largely non-controversial extensions to Medicare and

Medicaid programs”, such as extending funding for:

• Low Volume Hospitals;
• The Medicare-Dependent Hospital Program;
• Programs related to the Public Health Service; and
• Early childhood programs such as the Maternal, Infant, and Early Childhood Home Visiting (MIECHV) programs and the Promoting Safe and Stable Families (PSSF) program.

Most, if not all of these issues will be addressed in the expected end-of-year omnibus legislation.

Debt Ceiling

The U.S. is expected to hit its debt ceiling at some point next year. This means Congress would have to enact legislation to raise the debt ceiling to allow new borrowing. Traditionally, this was not a controversial issue. According to the U.S. Treasury, “Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit — 49 times under Republican presidents and 29 times under Democratic presidents. Congressional leaders in both parties have recognized that this is necessary.”

Recently, however, top Republican lawmakers have suggested using the debt legislation as leverage to get some concessions policy from the Biden Administration. This type of legislative brinksmanship, which was also used against President Obama, is quite dangerous. Failure to raise the debt limit would lead to a default by the United States with potentially catastrophic financial consequences. According to a study by Moody’s analytics published last year when the U.S. hit its previous debt limit, such a default  “would cost the U.S. economy up to 6 million jobs, wipe out as much as $15 trillion in household wealth, and send the unemployment rate surging”. So, in general, it is not a good idea to play petty politics with this issue.

That’s why some Democrats are pushing to have the debt limit increased during the lame duck session, using the complicated reconciliation procedures which require only a simple majority to close debate and move to a final vote in the Senate. The problem is that reconciliation is a time-consuming procedure and some Democrats may balk at investing precious floor time on an issue that while extremely important is not urgent. That’s why we think there is only a slim chance that Congress will take up this issue during the lame duck, but the political calculation is complex. Kicking the can until next year on the debt limit essentially hands the financial equivalent of a nuclear bomb to the MAGA crowd in the House. Financial markets around the world may have an adverse reaction to that decision.

After New Year’s Day

If the most likely scenarios for the House and the Senate materialize, with the Republicans running the House with a slight majority and the Democrats holding the Senate by the thinnest of threads, the following are some of the things we can expect when the calendar turns and the new year begins:

• Complex New Political Dynamics in D.C.: The Biden legislative agenda will stall. The opportunities for major legislation will be few and far between, if any. Nominations will keep moving through the Senate, but we can expect hard negotiations around deadlines for must-pass legislation to keep the government open or raise the debt limit. Given the expected irrationality of the MAGA faction in the House, Senate Republicans will hold most of the leverage during these negotiations. Legislative gridlock, though, will be the order of the day.

• Forceful Executive Action: In the absence of Congressional space to enact significant legislation, the Biden Administration will probably try to maximize the powers of the Executive Branch, through executive orders and the enactment of sweeping new rules and regulations. Republicans will challenge many of these actions in the courts, with the hope that the majority of Republican-appointed Justices in the Supreme Court will eventually invalidate some of them.

• Hand-to-Hand Political Combat in the House: The MAGA faction in the House has already made it clear they will use Congressional oversight powers to conduct investigations of, and to issue subpoenas to, members of the cabinet and other officials of the Biden Administration. Some have even talked about investigating the president’s son. The reality is that the MAGA crowd doesn’t really believe government can do much good and could care less about most substantive policy issues. If their primary objective is to “own the libs”, then we can expect plenty of hostile investigations and high-risk legislative brinkmanship during the next two years. That will make for some hard-hitting tweets but would be terrible for American democracy.

Priorities for Puerto Rico

In the immediate term, that is before the end of 2022, the federal legislative priorities for Puerto Rico are:

• Medicaid: The federal share of the funding for Puerto Rico’s Medicaid program is scheduled to decrease from 76% to 55% on December 16. It is imperative for Puerto Rico’s fiscal stability and the adequate operation of the island’s Medicaid program that this scenario does not come to pass.

• Hurricane Fiona Disaster Relief Funding: The Pierluisi Administration has preliminarily estimated damages caused by Hurricane Fiona at approximately $10 billion. That money would need to be appropriated by Congress, hopefully through the expected emergency appropriations supplemental bill to be taken up during the lame duck session.

Broader Implications for Puerto Rico

Given the new correlation of forces in Washington, Puerto Rico’s strategy in D.C. will have to shift from one seeking parity in federal funding for programs such as Medicare and Supplemental Security Income, to one of defending what we have already gained. For example, Rep. Cathy McMorris Rodgers (WA) is expected to become Chairwoman of the House Energy and Commerce Committee, which has primary jurisdiction in that chamber over Medicaid. She has already stated her opposition to a Centers for Medicare & Medicaid Services (“CMS”) interpretation of 2019 legislation which provided significantly increased federal annual capped funding for Medicaid to the territories for FY2020 and FY2021. The CMS interpretation extended the duration of the higher Medicaid capped funding beyond FY2021. As Chairwoman of the Energy and Commerce Committee, she may challenge the CMS interpretation and probably seek to lower the amount of capped Medicaid funding available to Puerto Rico.

Congress is also expected at some point during the spring of next year to take up a massive five-year Farm Bill, which will cover everything from farmer subsidies to nutritional assistance. The main Farm Bill policy objective of the government of Puerto Rico and many NGOs on the island is to seek a transition from the current Nutritional Assistance Program to the nationwide Supplemental Nutritional Assistance Program, known as SNAP. The transition to SNAP would entail higher nutritional assistance funding, as well as other benefits, for Puerto Rico. Given the expected new majority in the House, that will certainly be a challenge. With the help of our supporters CNE, and other NGOs, will continue to advocate for this issue.

It would be a mistake, though, to think that there is no space for Puerto Rico to obtain some wins in the federal policy arena. Those policy wins can be achieved if advocacy organizations and the island’s government adapt to the new reality in Washington. That adaptation implies learning to play interstitial politics, navigating between and staying away from the most extreme factions in both parties, while moving towards those members from both parties that are closer to the center. Granted, that is a tight political space given the expected composition of both chambers, but that is where any deals between the Biden Administration and Congress are most likely to be made.

Policy success under the new balance of power in D.C. will also entail learning and using a new language to communicate our message on the Hill. The fact that 55% of Puerto Rican voters in Florida voted for Gov. DeSantis signals that the Puerto Rican community in the state has become ideologically diverse and is not reflexively liberal or progressive. That political change could be very useful when approaching Senators Rubio and Scott or members of the Florida delegation in the House.

These new conditions probably make many people in Puerto Rico quite uncomfortable, perhaps rightly so. But we really don’t have an option given the nature of the political relationship between Puerto Rico and the United States; our nominal representation in Congress; the new political dynamics in Washington; and Puerto Rico’s great economic and social needs. Adapting to the new political conditions in the U.S. is the only strategy likely to be successful in avoiding two years of stagnation and achieving some policy victories in Washington.