Penn Hill GroupPresentation for the

NCHELP Legislative Conference

Vic KlattAlex Nock

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Federal Update

The Four P’s:

Process

People

Politics

Policy

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Process

The 112th Session: “The Gridlock Congress”

Very little major legislation, but some steps taken on education issues --policy direction more in focus

The budget mess: • The 6 Month Continuing Resolution – what it really means

• Sequestration

• The Remainder of FY13

The (really) lame duck session• Taxes (Payroll taxes, AMT, Cap Gains, Bush Tax Cuts, Extenders), Doc

Fix, Sequester, Debt ceiling

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Process

Congressional Gridlock = Administration takes matters into their own hands, i.e. new regs., waivers

Many new regulations have the potential to be game changers – could impact education policy for years; procedurally tough to overcome for a new Congress and/or President

Because of past gridlock, Congress will face an unprecedented situation in which nearly every major education law will be scheduled for reauthorization: ESEA, HEA, WIA, CTE, CCDBG, IDEA, & Welfare

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One Thing is Certain: The Players of Education Will Change

The Administration: lots of turnover no matter who wins

Big changes in Congress on key Ed Committees, especially if control changes

Intra-party battles will be more important than inter-party battles with each party becoming more unified than ever

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Fewer Mavericks, More Polarization

“With a 25-seat majority, you need to be together in order to govern. With so many new members comes the challenge of getting everyone’s expectations to be reasonable and having unified goals.”

Rep. Aaron Schock (R-IL)

• Over the past three decades, overlap between GOP and Dems has been disappearing, resulting in more polarized Congress

National Journal Vote Ratings in the Senate*

1982 – 2011Most liberal Republican senator

Most conservative Democratic senator

1982 D D D D D D D D D D D R D D D D D D D D D D D R D D D R D D R D D R D D R D R D R D R D D D R R R D R R D D R R D D D D R R R D R R R R R D R R R R R R R R R R R R R R R R R R R R R R R R R R

1994 D D D D D D D D D D D D D D D D D D D D D D D D D D D D D R D D D D D D D D D D D R D D D D D D D D D D R D D D R D D R R R R R D R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R

2002 D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D R R D R R R R R D R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R

R

2010 D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R

MORE LIBERAL MORE CONSERVATIVE

House Observation:

2011

Politics: Macro Level

It’s All About the Election

National Journal Scenarios

Penn Hill Group’s Take

The Impact on Higher Education Policy

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The Five Likeliest Scenarios

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Scenario 1:Obama wins White

House and Congress remains

divided

Scenario 2:Obama wins White House and GOP

wins both chambers of Congress

Scenario 3: Romney wins White

House and Congress remains

divided

Scenario 4:Romney wins White

House and GOP wins Congress

Scenario 5:Obama Wins White House and Dems

win Congress

30% 25% 10% 20% 15%

35% 20% 15% 25% 5%

Scenario 4: GOP Sweep Scenario 5: Dem SweepScenario 3: GOP President

National Journal

Source: National Journal Member Research, 2012. 9

Split Control: Déjà Vu All Over Again?Gridlock Isn’t the Guaranteed Outcome

of a Continuation of the Status Quo

Margin of Majority ControlElection Victories Won by a Narrower Margin Than

2008

Possible outcomes:

•Health care reform law remains intact.

•Dodd-Frank financial reform law remains intact.

•Obama and Congress attempt a “grand bargain” on deficit reduction and succeed. The deal curbs entitlement spending and overhauls the tax code. Bush tax cuts trimmed for upper-income taxpayers under deal.

•Or…Obama and Congress attempt a “grand bargain” on deficit reduction and fail. Entrenched party positions on entitlements and taxes prove too difficult to surmount. Some deficit reduction continues through automatic sequestration.

Scenario #1: Status Quo Overview

Source: National Journal Member Research, 2012. 10

Clean Divide: Clash of the TitansHand-to-Hand Combat on Everything?

Or Peace Agreements on a Few Key Issues?

Margin of Majority ControlElection Victories Won by a Narrower Margin Than

2008

Possible outcomes:

•Health care reform law remains intact, but GOP Congress attempts to reduce funding for core elements through “reconciliation.” Obama veto would block GOP’s reconciliation attempts. Maneuvering for leverage would ensue.

•Dodd-Frank financial reform law remains intact because Obama veto keeps GOP Congress from enacting repeal; GOP Congress attempts to reduce funding for core elements through “reconciliation.” Obama veto would block GOP’s reconciliation attempts. Maneuvering for leverage would ensue.

•Obama and Congress attempt a “grand bargain” on deficit reduction and succeed. The deal curbs entitlement spending and overhauls the tax code.

•Obama and Congress attempt a “grand bargain” on deficit reduction and fail. GOP Congress pushes to minimize impact of sequestration on defense, risking an Obama veto.

Scenario #2: Clean Divide Overview

Higher Education Policy under Split Control scenario

Education could receive significant attention as the President looks for possible victories outside of budget policy

Signature Obama initiatives continue: Community College agenda, regulatory expansion – with more to come

HEA Reauthorization possible, but big differences on issues like for-profits, Pell, and accreditation among others

Muddled outlook for student loan industry; Administration still likely to push cuts to pay for Pell and Interest Rate fix

Education Funding Outlook stable with moderate increases possible to larger programs -- Pell likely to receive increase, and interest rate fix on the table once again

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Source: National Journal Member Research, 2012. 12

GOP President, Senatorial PrivilegeCheckmate Alert

Scenario #3: GOP President Overview

Margin of Majority ControlIf Democrats pull together, they have the power of

the filibuster

Possible outcomes:

•GOP House moves on Romney agenda but Democratic Senate resists

•Tax cuts and tax reform, health care repeal, energy exploration and re-writing Dodd-Frank run into filibuster barrier, handcuffing Romney on big-ticket items

•Romney would face choice between House GOP base and persuadable Democratic senators. Wooing one means alienating the other, vastly complicating Romney’s calculations and running room

•Ryan budget and its entitlement reforms collapse in face of Democratic filibuster threats, increasing pressure on Romney to raise taxes to secure some variation of entitlement reform

•Energy agenda would stall unless Romney bids up “green” investments

Higher Education Policy under Senatorial Privilege Scenario Education takes a backseat to taxes, healthcare, military, and transition issues

in new Administration

Signature Obama Higher Education regulatory initiatives not likely to remain

HEA Reauthorization chances decrease as Romney works to formulate a new agenda more likely to emphasize private sector innovations and increased accountability for all sectors

Senate Democrats continue efforts to criticize private sector Higher Education players

Improved outlook for private sector lenders, with much lower likelihood of potential cuts and an outside chance of a new private sector loan program

Education Funding Outlook less stable as overall spending likely to decrease –changes to Pell to reduce costs more likely, and interest rate fix becomes more complicated

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Source: National Journal Member Research, 2012. 14

GOP Sweep: The Right StuffWinning Parties Often Overreach –

Could Republicans Avoid the Temptation?

Margin of Majority ControlNarrow Margin of Victory Necessitates Stronger Party

Cohesion

Possible outcomes:

•Health care reform law repealed under “reconciliation” process that circumvents Senate filibusters.

•Spending devoted to Dodd-Frank financial reform bill reduced or eliminated under “reconciliation.”

•If Congressional Republicans fail to repeal health reform and financial reform, Congress hampers implementation by refusing to fund core provisions.

•Republicans fashion major deficit-reduction measure, fundamentally changing Medicare and Medicaid to reduce the government’s role in the programs, cutting spending for education, environmental regulation, transportation, overhauling tax code to cap federal revenues as a percentage of GDP.

Scenario #4: GOP Sweep Overview

Higher Education Policy under GOP Sweep scenario Education takes a backseat to taxes, “Obamacare,” military, and

transition issues in new Administration

Signature Obama initiatives not likely to remain and regulatory threats to all members of the higher ed community lessen

HEA Reauthorization chances decrease as Romney formulates his agenda, and Democrats and outside Allies dig in

Chances for Federal government/private sector partnerships increase, including in the student loan arena

Education Funding Outlook less stable as overall spending likely to decrease – including for Pell Grants and student loan interest rates

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Source: National Journal Member Research, 2012. 16

Democratic Sweep: Vintage VindicationConsolidation of First Term Victories; Expand to

Education and Immigration

Scenario #5: Dem Sweep

Margin of Majority ControlNarrow Margin Offset by Revived Mandate

Possible outcomes:

•Obama secures funding and bureaucratic foundations for Dodd-Frank and health care

•Obama cancels high-end Bush tax cuts after recessionary fears ease and uses tax reform debate to seek more corporate revenue and breaks for middle class earners

•Immigration re-emerges as key priority

•Transportation and education reauthorizations pick up speed

•Green jobs investments expand

Education Policy a Democratic Sweep scenario

Significant chance a re-elected President Obama elevates education policy agenda

Signature Obama initiatives continue: Community College agenda, regulatory expansion, Pell Grant protection

HEA Reauthorization chances increase

Education Funding Outlook stable with possible moderate increases

Student loan and for profit industries will be targeted in Obama Budget and Regulatory initiatives

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Election’s Impact on Education Policy

Overall Policy Trends Obama Romney Congress: Dems Congress: GOP

Tie Federal aid to results, i.e. grad rate College Completion Pell Grant funding For Profits Distance Education Interest Rate Loan Servicing Costs Gainful Employment Teacher Accountability – K-12 and HE Community Colleges Private Sector Loan Initiatives Program Consolidation Overall Education Funding

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Election’s Impact on Education Policy

Policy/Regulation Obama Romney Congress: Dems Congress: GOP

NCLB HEA WIA Voc Ed CFPB Regulations