May 5, 2008

© 2008, BLANK ROME GOVERNMENT RELATIONS LLC. Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome. The information contained herein is abridged fromlegislation, court decisions, administrative rulings, and other sources and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.

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DEFENSE AND HOMELAND SECURITYHouse Passes Coast Guard Reauthorization Bill

On April 24 the Housepassed the FY08 CoastGuard Reauthorization bill(H.R. 2830) by a vote of 395-7. The bill, which authorizes$8.4 billion for Coast Guardprograms, tightens securityalong the U.S. coast andimproves oversight of theCoast Guard’s Deep waterprogram. In addition, themeasure contains provisionsthat regulate how to punishsmugglers of immigrants,require the Coast Guard to

maintain a database accounting for missing persons and crimes oncruise ships as well as several provisions on regulating ballast water.Furthermore, the bill includes provisions to implement Annex VI ofthe International Convention for the Prevention of Pollution fromShips (MARPOL), which places limits on maritime exhaust emissions.

The most controversial of the bill’s provisions were those relatingto liquefied natural gas (LNG). President Bush threatened to veto theHouse bill due to a provision that requires the Coast Guard to takecharge of security around LNG sites, saying that it would divert CoastGuard resources from other duties. During floor debate, however,Representative Steven LaTourette (R-OH) offered an amendment toallow the Coast Guard to take into account state and local resourceswhen determining if an LNG site is secure. The amendment wasapproved easily by voice vote. Many hope that it will be enough tothwart a presidential veto, but the president has not yet retracted hisveto threat.

It is not known when the Senate will take up its version of the bill.Currently, there are holds on the bill by the Senate JudiciaryCommittee and the Senate Environment and Public WorksCommittee because of objections to some provisions included in themeasure. These issues must be worked out before the bill can bedebated on the Senate floor.

CONTENTS

DEFENSE AND HOMELAND SECURITY

House Passes Coast Guard Reauthorization Bill 1Senate Committee Begins Defense Authorization Bill 2

ENVIRONMENT

Voinovich to Introduce Global Warming Legislation 2GAO Report Criticizes EPA’s Chemical 3Risk Assessment Process

ENERGY AND COMMERCE

Senators Revisit Renewable Fuel Mandates 3Food and Drug Administration Asks 3Lawmakers to Increase Funding forInspection of Foreign Drug Manufacturers

FINANCE

Congressional Housing Assistance Initiatives 4

TAX

Blue Dogs Attempt AMT Fix 4

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• Direct the Environmental ProtectionAgency (EPA) to create incentives ofclean energy technologies through taxbreaks for industry;

• Create public-private partnershipsto speed the deployment of newtechnologies;

• Resort to a mandatory emissions cap in2030 in the absence of “substantialprogress” toward meeting the emissionsgoals. How ever, until other largenations agree to reduce their own emis-sions, any cap-and-trade legislationwould be suspended.

According to Congressional Quarterly (CQ),Garrette Silverman, a Voinovich spokeswoman,said that the senator has not finalized the legislation, adding that the time for intro -ducing the bill is uncertain. “The senator hasbeen talking and working with those willingto come to the table on developing a strategythat will actually help the environment andnot kill our economy,” she said.

Although Senator Voinovich’s measuredoes not come with direct support from theWhite House, the themes are similar to theones President Bush recently outlined in hisRose Garden speech on global warming.

Senate Committee Begins Defense Authorization BillThe Senate Armed Services Committee began writing the fiscal

year 2009 (FY 2009) defense authorization bill this week. The bill isexpected to contain provisionsthat would demand the Iraqigovernment fund a biggershare of their country’s recon-struction costs as well as lan-guage that would set a timelinefor the withdrawal of U.S.troops.

The escalating cost of thewars in Iraq and Afghanistancoupled with a slowed U.S.economy have forced mem-bers of both parties to discussthe need for Iraq to spend

more if its own funds on reconstruction efforts. Several members ofthe Senate Armed Services Committee favor shifting the financial burden to Prime Minister Nouri al-Maliki’s government, which hasbeen greatly profiting from the sale of oil. Some Senators have evenfloated the idea of having Iraq pay for the U.S. military’s fuel costs aswell as the salaries of former Sunni insurgents who are now aiding theAmerican effort against al Qaeda in Iraq. Additionally, Senators BenNelson (D-NE), Evan Bayh (D-IN), and Susan Collins (R-ME) wouldlike U.S. funds to be provided to Iraq in the form of loans insteadof grants.

Senate Armed Services Committee Chairman Carl Levin (D-MI)and Senator Jack Reed (D-RI) are expected to introduce a slightly modified version of the withdrawal language they offered last year. Theprovision may not be included in the authorization and, instead, beoffered during floor consideration of the emergency supplemental bill.Regarding this matter, Senator Levin stated “we’re looking for the rightplace to introduce the right language.”

Additional looming debates include whether or not to reducePresident Bush’s $3.3 billion request for the Future Combat Systems,the U.S. Army’s principal modernization system, and the admini -stration’s proposal for increased fees and deductibles for use in the military’s Tricare health care system.

ENVIRONMENTVoinovich to Introduce Global Warming Legislation

Senator George Voinovich (R-OH) is drafting global warming legislation that would be a less stringent alternative to the Lieberman-Warner bill that is slated to move on the Senate floor this June. TheIncentives-Based Climate Policy Act would reduce nationwide greenhousegas emissions to 2006 levels by 2020 and to 1990 levels by 2030.Specifically, the draft legislation would:

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GAO Report Criticizes EPA’s Chemical Risk Assessment ProcessThe Senate Environment and Public Works Committee is looking

into a Government Accountability Office (GAO) report that says theBush Administration is hampering the Environmental ProtectionAgency’s (EPA) ability to adequately assess health dangers of toxicchemicals. A review process begun by the White House in 2004 andformally adopted by the EPA earlier this month allows other agencies,including the Defense Department, to participate in the risk assess-ment process earlier. The GAO report, obtained by the Associated Press,said the EPA’s ability to conduct timely, science-based risks assess-ments was being undermined by allowing greater involvement in theprocess by nonscientists, often in secret. The GAO concluded that theadministration’s decision to give the Defense Department and otheragencies an early role in the process adds years of delays in acting onharmful chemicals and jeopardizes the program’s credibility.

“By law the EPA must protect our families from dangerous chem-icals,” said Senate Environment and Public Works Chairman BarbaraBoxer (D-CA). “Instead, their protecting the chemical companies.”

ENERGY AND COMMERCESenators Revisit Renewable Fuel Mandates

As food riots erupt throughout the developing world andAmerican consumers adjust to substantially higher food prices,Senators from both sides of the aisle have called for increased scrutinyof the renewable fuel mandates included in the Energy Policy Actof 2005 and expanded by the Energy Independence and Security Actof 2007.

On Monday, April 28, Senator Kay Bailey Hutchison (R-TX)announced that she intended to introduce legislation freezing theethanol mandate at the 2008 level. Current law requires that 9 billiongallons of ethanol be blended into the United States’ fuel supply in2008, 13 billion barrels in 2010, and 36 billion gallons by 2022. TheEnviron mental Working Group estimated that 20 percent of the 2006corn crop was converted to ethanol and as much as 30 percent of thisyear’s crop will be needed to meet the current mandate.

Senator Hutchison said that the conversion of this large percent-age of corn output into ethanol ispartly accountable for food shortagesand increasing prices: “[Consumers]are seeing the cost of wheat andbread go up, the price of milk go up,chicken, pork, beef, anything that isrelying on corn…It’s all comingtogether and prices are going up.”

Senator Hutchison’s RepublicanSenate colleague, Senator JamesInhofe (R-OK), echoed her sentimentsin a floor speech delivered on April 29.Inhofe called on the EnvironmentalProtection Agency to “waive all or por-tions of these food-to-fuel mandates aspart of its rule-making process.”

Senate Majority Whip Dick Durbin(D-IL) agreed that Congress should reexam-ine renewable fuel mandates. SenatorDurbin, who represents the nation’s secondlargest corn-producing state, stressed that heis not necessarily advocating a shift awayfrom corn-based ethanol, but conceded “it’shad an impact on food prices…even in theCorn Belt, we’d better be honest about it.”

Food and Drug Administration AsksLawmakers to Increase Funding forInspection of Foreign Drug Manufacturers

Each House of Congress has held hear-ings recently to ask top Food and DrugAdministration (FDA) officials how theagency’s oversight of imported drugs can beimproved. Both hearings were spurred by theimportation, from China, of contaminatedHeparin tablets. The contaminated doses arethought to have contributed to the death of81 people in the United States.

Janet Woodcock, director of the FDA’sCenter for Drug Evaluation and Research,testified before the Senate Health, Education,Labor and Pensions on Thursday, April 24and before the House Energy and CommerceCommittee’s subcommittee on Oversightand Investigations on Tuesday, April 25.During both hearings, she stressed the needfor increased funding for the FDA. She toldlawmakers that the agency simply did nothave the resources to inspect Chinese drugmanufacturing operations frequently enoughto ensure they met American quality stan-dards. Woodcock did not provide either com-mittee with an exact estimate of the cost ofimproving the FDA’s foreign inspectionregime, but speculated during the Househearing that the figure could be as high as$225 million dollars annually. In 2007 theFDA spent 12.7 million dollars on foreigninspections, according to the GAO.

Representative John D. Dingell (D-MI),chairman of the House Energy and CommerceCommittee, has introduced a draft bill whichwould fund foreign inspections by requiringdrug manufacturers to pay user fees.

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Woodcock also told lawmakers that in addition to more resourcesfor foreign inspections, the FDA needed to create a database to helptrack drug imports and funding for programs to educate regulators inother countries about health and safety standards in the United States.

F INANCECongressional Housing Assistance Initiatives

As the U.S. mortgage crisis continues to drag on, lawmakersremain determined to solve the problem through several housing-assistance legislative packages that have been introduced in Congress.The Senate was successful in recently passing the ForeclosurePrevention Act of 2008, H.R. 3221. As passed, the Senate measurewould overhaul the Federal Housing Authority (FHA) and permanentlyraise the maximum loan amount the agency could insure to $550,000.In addition, the bill would authorize $4 billion in CommunityDevelopment Block Grants to purchase and rehabilitate foreclosedproperties as well as provide tax breaks for buying foreclosed homesand for money-losing homebuilders.

According to a White House press statement released in responseto an earlier version of the bill, the Administration strongly opposesappropriating $4 billionfor assistance to state andlocal governments for theredevelopment of aban-doned and foreclosedhomes, saying that it istoo costly and does littleto help struggling home-owners.

In addition to theForeclosure PreventionAct in the Senate, there are numerous other components to Congress’housing assistance plan. Several House members have tried to advancea broad housing package that bundles together all of the existing pend-ing housing assistance bills. House Financial Services CommitteeChairman Barney Frank (D-MA) has indicated that any housing pack-age that is created will likely include an overhaul of the FHA, tax leg-islation aimed at encouraging home purchases and aiding low-incomerenters as well as a major expansion of the FHA’s insurance programsintended to help struggling borrowers refinance their loans. ChairmanFrank also indicated that the package would include an overhaul ofFannie Mae and Freddie Mac. House law makers hope that somethingcan be drafted by the end of May.

TAXBlue Dogs Attempt AMT Fix

Congressional Blue Dogs, a coalition of fiscally conservative HouseDemocrats, have struck a compromise with Budget Committee chairmenin both chambers that seeks to offset the cost of shielding millions ofmiddle-class taxpayers from the Alternative Minimum Tax (AMT).

Blue Dog Leaders, RepresentativesMike Ross (D-AR) and Allen Boyd (D-FL),stated that under the agreement, “revenuelevels in the budget resolution will reflectan assumption that an AMT bill will be off-set, and a Senate provision making roomfor a non-offset $35 billion stimulus pack-age will be dropped.”

The Blue Dog plan, however, is in jeop-ardy in the Senate. Under “paygo” rules,adopted by the Democratic Congress and apriority for the Blue Dogs, tax cuts and newspending must be offset. An AMT fix isestimated to cost about $70 billion andSenate Democrats do not believe they havethe votes to offset the AMT patch. HouseDemocrats initially planned to move theplan through the budget reconciliationprocess, a process that would have pre -vented Republicans from employing a filibuster. Key senators, such as both Maine

Republican Senators Susan Collinsand Olympia Snowe, whose votesare needed to enact a final deal,threatened to withhold their supportfor the AMT fix as they believe theuse of the reconciliation process isan attempt by the majority party toforce their policies on the minoritythrough strong arm tactics.

Senate Finance CommitteeChairman Kent Conrad (D-ND)convinced the Blue Dogs that his

committee would likely ignore a reconcilia-tion instruction, all but forcing the BlueDogs to search for a compromise thatwould not use the reconciliation process.Budget details still have to be ironed out,such as the spending cap for the annualappropriations bills, but an agreement withthe Blue Dogs is viewed by insiders as amajor step toward the adoption of a“paygo”-compliant budget. �

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