Senate Passes $1.8T Spending And Tax Extender Package

On Friday the U.S. Senate passed a $1.15 trillion omnibus spending bill for fiscal year 2016 that includes tax, trade, health care, labor, energy, cybersecurity, environmental and immigration policy measures, alongside a $622 billion tax package extending several expiring tax breaks and making tax policy changes.

Senators voted 65-33 to pass the omnibus Consolidated Appropriations Act, 2016, and the Protecting Americans from Tax Hikes Act, both parts of a package agreed to earlier in the week by negotiators. The omnibus bill provides a total of $1.149 trillion in discretionary funding in fiscal 2016, while the PATH Act includes a broad range of so-called tax extenders, either extending or making permanent several tax incentives.

The omnibus bill had passed the House earlier Friday morning with broad bipartisan support, 316-113, even after lawmakers had picked at aspects of the sweeping bill in earlier floor speeches. The tax extender bill had separately passed Thursday in a 318-109 vote, and the package will now go to President Barack Obama to be signed into law.

Overall, the omnibus bill provides $1.067 trillion in base level discretionary funding for fiscal 2016 — $548 billion for defense spending and $518 billion for nondefense spending — as well as $73.7 billion in Overseas Contingency Operations, or OCO funding, meant for war-related expenses, rolling in all 12 annual appropriations bills typically passed each year by Congress.

The tax extenders bill would extend a range of existing tax credits and incentives, both for businesses and individuals, either for two years, five years or in some cases permanently, including a research and development credit, production credits for renewable fuels — with other renewable energy incentives included in the omnibus — and the child tax credit and Earned Income Tax Credit.

Both bills also contain a number of policy “riders,” for instance collectively putting moratoriums on two unpopular Affordable Care Act taxes: the 2.3 percent medical device excise tax and the “Cadillac” tax, an excise on high-cost health insurance plans, as well as a provision providing health care and compensation funding for 9/11 first responders.

Other policy provisions in the omnibus bill include a revised version of the Cybersecurity Information Sharing Act, recently passed by the Senate, giving certain legal protections to companies that share information on cyberattacks with the government or among themselves.

And there also clauses to alter or restrict contentious environmental rules, such as the scope of the EPA’s Clean Water Act authority, and make over energy policy, including the removal of restrictions on the Overseas Private Investment Corporation and U.S. Export-Import Bank funding overseas coal-fired plants in low-income countries, and the lifting of a decades long ban on U.S. exports of crude oil.

Policy measures in the tax extenders bill include changes to the treatment of real estate investment trusts, such as restricting certain tax-free spinoffs of real property into REITs, among other alterations, and the bill also seeks to “rein in” the IRS in response to recent scandals, such as the targeting of conservative groups that applied for nonprofit status, according to its sponsors.

That would include prohibitions on IRS employees using personal email accounts for official business, the ability to terminate IRS employees found to have taken politically motivated actions in their official capacity and allowing organizations to appeal if their tax-exempt status is revoked or denied.

With the bills passed, lawmakers head off on their winter recess.

Why the FAST Act Will Benefit Public-Private Partnership

Congress has passed, and the president has signed, a long-term surface transportation reauthorization bill, (America’s Surface Transportation Act (FAST Act), H.R. 22) providing approximately $305 billion of funding for highway and transit projects over the next five years and revising federal transportation policy on a number of important topics-including public-private partnership market.

The Highway Trust Fund

The Highway Trust Fund, supported largely through user fees by way of federal gas tax revenues, serves as the primary mechanism for states to fund road and transit construction and maintenance projects. The Highway Trust Fund has a growing gap between revenue and expenditures because the federal gas tax rate has not been raised since 1993 and is not indexed to inflation, while the cost of maintaining and improving U.S. surface transportation infrastructure continues to rise and increasingly fuel-efficient cars use fewer gallons of gas per mile traveled.

The FAST Act generally maintains the existing federal transportation funding model — distributing more than 90 percent of federal funding to state departments of transportation through formulas — while boosting highway spending by about 15 percent over existing levels, and increasing transit spending by about 18 percent. After dozens of recent short-term patches of the Highway Trust Fund through transfers from the general revenue fund, the FAST Act closes a five-year, roughly $70 billion gap through creative one-time budget mechanisms such as transfers from Federal Reserve accounts and the sale of oil from the Strategic Petroleum Reserve.

While state departments of transportation have praised the predictability of the FAST Act, the modest increase in overall spending levels will not fully address the looming U.S. infrastructure backlog. For example, the American Society of Civil Engineers estimates that the U.S. needs to invest approximately $1.8 trillion in surface transportation projects by 2020 to maintain a state of good repair. Additionally, the FAST Act does not provide a long-term sustainable solution (such as a gas tax rise or a vehicle miles traveled fee) for fully funding the Highway Trust Fund beyond the act’s five-year term.

Public-Private Partnerships and Innovative Financing

Previously, states relied almost exclusively on Highway Trust Fund transfers, state gas tax revenue and municipal bonds to fund new projects, delivering such projects through a design-bid-build model whereby the state department of transportation developed design specifications then solicited the lowest bid for the construction of a project. In an effort to improve mobility and build new highway and transit capacity in a funding-constrained environment, U.S. states have increasingly turned to public-private partnership (P3) delivery models that include project risk transfer from states to private entities, efficient and integrated delivery of design, construction and maintenance project components, and an infusion of upfront private equity. U.S. states are also using more project-based revenue sources, such as user fees and tolls, and innovative federal finance tools such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) federal credit program and private activity bonds.

On balance, by providing a relatively stable but still under-funded federal revenue stream, the FAST Act is largely positive for the continued use of the P3 delivery model by U.S. states. The FAST Act will end much of the short-term funding uncertainty that caused states to postpone or cancel projects during prior weeks- or months-long Highway Trust Fund patches, but the lack of fully realized surface transportation funding will encourage states to continue to seek project delivery efficiencies and private funding sources through P3s.

Toll Policy

The FAST Act takes a mixed approach toward federal tolling policy. User fees, usually in the form of tolls for highway projects, are often essential elements of the funding and financing package for P3 projects. While federal law only allows tolling on interstate highways where additional lanes are constructed, the Interstate System Reconstruction & Rehabilitation Pilot Program allows three states to experiment with tolling existing interstate highways. Created in 1998, the pilot program has long been fully subscribed, but the three participating states (Virginia, Missouri and North Carolina) have not yet implemented any tolling of existing facilities under the program. While P3 and tolling proponents had urged Congress to expand the number of slots in the pilot program, the FAST Act instead encourages the existing participants to expedite their projects, requiring the three existing states to move forward with a tolling project within one year (with a potential one-year extension). If the participants fail to comply, their slot will expire and other states will be eligible. The FAST Act also requires new states to have legislative authority to implement the tolling of an existing facility, and any new participants must complete their projects within three years.

TIFIA Funding Levels and Policy Tweaks

The FAST Act reduces funding levels for the TIFIA program (utilized by many P3 projects) from $1 billion over the last two years to $275 million in FY 2016, rising to $300 million for FY 2019 and FY 2020. However, TIFIA had not made full use of its authorized funds in the last two years, causing $639 million in TIFIA funds to be transferred back to the Highway Trust Fund in 2015. The FAST Act eliminates the requirement that the TIFIA program transfer such uncommitted balances.

While the TIFIA funding cut is not ideal, it should not have an acutely adverse effect on P3 projects due to the lack of market support over the last two years for the $1 billion annual level and the steady increases in funding over the five-year life of the FAST Act. The FAST Act also allows states to use an increasing array of funding sources to pay the subsidy and administrative costs associated with TIFIA credit assistance, expands eligibility to include smaller projects and transit-oriented development projects, creates a streamlined process for TIFIA loans under $100 million, and increases funding levels for the U.S. Department of Transportation’s administration of the program. Additionally, the FAST Act codifies existing DOT practice by allowing costs related to P3 projects using an availability payment concession model to be eligible for federal reimbursement.


The FAST Act fixes a widely criticized element of the Water Infrastructure Finance and Innovation Act (WIFIA) program introduced in 2014 by eliminating a prohibition on financing water infrastructure improvements with financing packages that include both WIFIA loans and tax-exempt debt such as municipal bonds.

Innovative Finance Bureau and Investment Center

The FAST Act also establishes a National Surface Transportation and Innovative Finance Bureau within the DOT, which is intended to serve as a “one-stop-shop” for states and local governments to receive federal financing or funding assistance, as well as technical assistance. The nascent Build America Transportation Investment Center introduced this year by the Obama administration appears to have an overlapping mandate, and it remains to be seen how these two entities will interact. While the bureau and center may not provide enormous benefits for state departments of transportation with extensive P3 experience, their existence reflects a general positive attitude of Congress and the administration toward P3s and innovative finance.

Nationally Significant Freight and Highway Projects Program

The FAST Act creates a new grant program, the Nationally Significant Freight and Highway Projects Program, funded at $4.5 billion over five years, for “nationally significant” projects costing more than $100 million that improve the movement of both freight and people, increase competitiveness, reduce bottlenecks, and improve intermodal tansportation. The DOT will award projects competitively based on statutory criteria, similar to the popular existing “TIGER” competitive grant program administered by the DOT. The FAST Act limits the federal share of project costs to 60 percent, and only $500 million of the $4.5 billion can be awarded to freight rail and freight intermodal projects.

Long-Distance Intercity Passenger Rail Routes

In addition to the highway and transit provisions, the FAST Act contains a passenger rail title that reauthorizes and funds Amtrak intercity passenger rail operations for a five-year period. Included among the passenger rail policy prescriptions is a new pilot program that would allow a public entity (such as a state or a joint powers authority) or a private rail carrier to bid to operate up to three long-distance (more than 750 miles) passenger rail routes that are currently run by Amtrak. While Amtrak turns a profit on its heavily used Northeast Corridor service, many of Amtrak’s long-distance routes are unprofitable.

NJ Hospitals: Contract Suit Over Omnia

Seven hospitals on Thursday launched the latest legal challenge in New Jersey to Horizon Healthcare’s new tiered coverage program, contending Horizon breached in-network contracts.

Capital Health System Inc., CentraState Medical Center Inc. and other hospitals behind Thursday’s suit in Bergen County Superior Court argue that, under the network agreements they signed with Horizon Healthcare Services Inc., they should have received at least 60 days notice of the insurer’s Omnia Health Alliance and the criteria that it was using to determine preferred tier facilities for the program’s plans. According to the hospitals, they should have had the chance to demonstrate that they meet the standards for Tier 1 status.

Framing Omnia as a response to rising health care costs, Horizon, the state’s largest health insurer, has said that consumers with Omnia plans will see lower out-of-pocket costs when they use Tier 1 facilities. However, lower-tier hospitals, including all those suing Horizon in Bergen County, have attacked the fairness of their designations and raised fears about the financial implications if patients go elsewhere for services.

Capital Health System and its allies noted that Horizon, which holds 50 percent of the market for commercial health insurance in New Jersey and provides coverage to about 3.8 million people in the state, has been heavily promoting Omnia.

In the Complaint the seven hospitals say:  “On almost a daily basis since Horizon’s initial proclamation of the arrival of Omnia and the alliance, the hospitals have been confronted with questions and comments from patients expressing concerns that the hospitals are somehow inferior to Tier 1 hospitals and from physicians noting that, once Omnia is effective, they will be compelled to refer patients to Tier 1 hospitals because of the powerful cost incentives favoring Tier 1 hospitals,” Thursday’s suit said.

“If Horizon is permitted to continue on its current course, the damage to the hospitals will be significant and largely irreparable,” the Complaint added.

The hospitals are calling on the court to require Horizon to negotiate with them regarding Tier 1 status and block the insurer from suggesting in marketing or advertising efforts that Tier 1 hospitals provide better, higher-value or lower-cost health care than Tier 2 hospitals.

The other hospitals in Thursday’s suit are Holy Name Medical Center Inc., The Community Hospital Group Inc., which operates as JFK Medical Center, St. Luke’s Warren Hospital Inc., Trinitas Regional Medical Center, and The Valley Hospital Inc.

The suit adds another front in the legal and legislative war over Omnia, which was announced in September. The plans have an effective date of Dec. 26 for certain public employee members and Jan. 1 for all other members.

A coalition of Tier 2 hospitals, including plaintiffs in the Bergen County suit, are contesting the New Jersey Department of Banking and Insurance’s approval of Omnia with the state Appellate Division, while St. Peter’s University Hospital Inc. has separately hit Horizon with a breach-of-contract suit in Middlesex County Superior Court for failing to provide advance notice or giving the hospital a chance to apply for Tier 1 status.

Lawmakers have also tried to block Horizon’s implementation of the Omnia plans.

On Dec. 7, state Sens. Nia Gill, D-Essex, and Joseph Vitale, D-Middlesex, unveiled a four-bill package that would freeze the implementation of any tiered health insurance plans that have been offered this year until Jan. 1, 2017, and impose other new requirements on the creation and administrative review of such plans.



$305B Highway Bill Passes Senate

The U.S. Senate late Thursday passed a five-year, $305 billion surface transportation funding bill intended to improve surface transportation infrastructure and make several broad changes to transportation policy, as well as reauthorizing the U.S. Export-Import Bank and allowing for private tax enforcement.

Called the “The Fixing America’s Surface Transportation”, or “FAST, Act”, the legislation passed in a bipartisan 83-16 vote, after passing the House of Representatives earlier in the day, 359-65, and will now go to President Barack Obama to be signed into law. The bill authorizes and funds federal highway and other surface transportation programs through fiscal 2020, helping to provide both certainty and flexibility for state and local governments who rely on federal highway funding, while also working to streamline project approval processes and reform transportation programs, according to legislative statements.

The 1,300-page bill was unveiled Tuesday after a bicameral conference between Senate and House lawmakers, following each chamber’s putting forward a competing six-year bill. It is the first long-term highway bill to pass Congress since 2005.

Among other provisions, the bill expands the funding available for bridges off the National Highway System, eliminates or consolidates at least six offices within the U.S. Department of Transportation and encourages the installation of vehicle-to-infrastructure communication equipment to improve congestion and safety. It would also increase the National Highway Traffic Safety Administration civil penalties cap and makes changes to the auto safety recall process.

Public transit would get an 18 percent funding boost over five years, with dedicated bus funding increased even more. The bill also directs a review intended to help create federal minimum safety standards for public transportation and would make several changes to how Amtrak operates, for instance seeking to reorganize its operations around supporting its “major business lines” and giving states more control over routes through the creation of a State-Supported Route Committee.

It would also allow for the current $200 million liability cap on Amtrak incidents to be adjusted to account for inflation, as well as specifically lifting the cap to $295 million for claims stemming from the deadly May 12 derailment in Philadelphia that killed eight passengers and injured dozens more.

The bill further includes a clause reauthorizing the U.S. Export-Import Bank, that backs exports by U.S. businesses via loans and loan guarantees, through 2019. The bank’s charter had been allowed to lapse in June, amid opposition from several senior lawmakers, most prominently House Financial Services Committee Chairman Jeb Hensarling, R-Texas, whose committee is responsible for related legislation.

Opponents argue the bank is an exemplar of “crony capitalism,” but a bipartisan coalition supportive of the bank argues it helps support many domestic jobs and used the rarely-invoked procedural move of a so-called discharge petition to force a bill reauthorizing the bank onto the House floor in October.

To help pay for transportation programs, FAST  reauthorizes the federal gasoline tax through fiscal 2022, although keeps it at the existing 18.3 cents-per-gallon level, where it has remained since 1993. The tax typically brings in around $35 billion each year, but factors such as inflation, increasing fuel economy standards and a decrease in average miles driven each year mean this is not enough to fulfill yearly demand according to legislative history.

Thus, lawmakers have included several other offsets for the bill’s full $305 billion authorization, including an increase in aviation security fees that airline passengers pay, tightened enforcement on certain outstanding taxes — including a controversial provision to raise revenue by requiring the Internal Revenue Service to hire private collection agencies to recoup certain tax debts — and the sale of oil from the federal Strategic Petroleum Reserve.

A clause that has drawn criticism from the banking industry would limit the dividend banks with more than $10 billion in assets are paid on Federal Reserve stock. Banks currently receive a flat 6 percent on this stock, required to be purchased to participate in the Fed system, but would instead receive the lower of 6 percent or a rate equal to the high yield of the 10-year U.S. Treasury note at the most recent note auction. Smaller banks would continue to receive 6 percent.

New Jersey State Assembly members hear testimony on Horizon’s Omnia Alliance

New Jersey State Assembly members heard testimony today on Horizon’s Omnia Alliance and its controversial tiered healthcare plans that face legal challenges from an eleven-member coalition of hospitals who say they are being strong-armed into an unfavorable deal with Horizon Blue Cross. The mayors of Trenton (Eric Jackson) and Elizabeth (Chris Bollwage) criticized the provider at the joint hearing of the Assembly Health and Services and Regulatory Oversight Committees.

Critics say hospitals that did not agree to reimbursement rates favorable to Horizon in exchange for higher patient volume have been forced to charge high rates to disadvantaged customers as second-tier institutions, setting the stage for losses in inner-city areas as those hospitals decline or fail. Proponents cite a need for drastic cost reductions in New Jersey, and say Horizon is merely executing a strategy that many smaller providers have already put in place. Horizon insures nearly 50% of patients across New Jersey.

Representatives of Horizon and the acting DOBI Commissioner were not present at Wednesday’s hearing.

Jackson and Bollwage said that the new Omnia plans have already placed an undue burden on poor and inner-city communities.

“What damage has been done in the meantime?” asked Jackson. “Not only to the institutions, but how many lives have been impacted by individuals who not only have a $4,500 deductible but find out when they get to a tier two physician, or hospital, that their copays are more than double what they saw on that sheet?”

Jackson said that he was testifying in the interest of defending Trenton’s charity, faith-based and non-profit hospitals from unfavorable public perceptions as well as new fiscal challenges.

“We are a tier-one city all the way around,” he said.

“Healthcare hospitals are the economic engines for your communities, and sometimes even the largest employers next to the cities,” said Shavonda Sumter (D-35), of Paterson, thanking the mayors for bringing the economic impact of the tiered networks into the discussion.

Saying that the new plans were “designed to shift market share from disfavored tier-two hospitals to favored tier-one hospitals in a non-transparent and secretive manner,” former Department of Banking and Insurance Commissioner and attorney Steven Goldman painted the approval process from the New Jersey DOBI as too hasty.

“No input was sought from any of the tier-two hospitals that I represent,” Goldman said, adding that a thorough review would have taken months and not the two weeks Horizon waited before it received approval.

Health and Senior Services Chair Herb Conaway (D-7) agreed with the mayors’ testimony that many patients in low-income areas with a low density of tier-one hospitals would have to travel over an hour for care.

“It doesn’t really fully appreciate the transportation challenges that many people have,” said Conaway. “And we’re going to have to address that in regulations.”

Regulatory Oversight Chair Reed Gusciora (D-15) criticized the marketing push for the Omnia plans as obfuscating the cost and failing to address access, saying of Horizon’s materials “It doesn’t say ‘oh by the way, if you live in Trenton or Elizabeth don’t bother with these plans.”

At one point, Gusciora held up a spreadsheet detailing Horizon’s Omnia plan options for public workers, putting to Jackson and Bollwage that the second-tier providers have to levy exorbitant patient copays.

“One of them is the Horizon OMNIA, and it notes that it has the tier one and tier two program. If you choose a tier two hospital you have to pay a $4,500 copay. And I was wondering, how many of your constituents, per visit, can afford $4,500?” he asked Bollwage.

“I can’t,” Bollwage answered. “I’m a Horizon member and if you said to me I have to pay another $4,500, that’s going to take something out of the budget in my own household.”