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WashingtonWise Investor: Episode 19


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Complications Loom as Senate Heads Back to Work

With the Senate heading back to Washington on Monday, a host of challenges—logistical, political, and practical—exist. How will Congress navigate them, and what will matter most to investors?

In this episode of WashingtonWise Investor, Mike Townsend looks at the complexities of Congress getting back to work—from the basic logistics of senators and staff safely gathering to the actual voting, debating, and all-important committee meetings. He then considers the unique policy and political dynamics facing lawmakers as they tackle the drafting and passing of another round of coronavirus aid and the key components that will be at the center of the debate.

Mike also checks in on the changing landscape of the battle for control of the Senate, focusing on states that are currently considered toss-ups.  

WashingtonWise Investor is an original podcast from Charles Schwab.

If you enjoy the show, please leave a rating or review on Apple Podcasts.

Click to show the transcript

MIKE TOWNSEND: Both the U.S. Senate and the House of Representatives announced early this week that they would be returning to Washington on Monday to resume regular sessions—a prospect that would bring as many as 529 lawmakers and hundreds, perhaps thousands, more aides and support staff all crammed into the Capitol complex.

The decision prompted cheers from those inside and outside of Congress who are eager to see the nation’s legislature get back to work. But it also provoked outrage from many who felt the decision puts lawmakers and staff at an unreasonable risk, and who question whether Congress can operate safely in a time of social distancing.

Within 24 hours, House leaders reversed course, announcing that, after consulting with the Capitol physician, the House would not resume meeting next week. But Senate leaders reiterated their intention to bring the full Senate back to Washington on Monday.

The decisions underscore the range of challenges, from the logistical to the political, that Congressional leaders are wrestling with as they try to get the legislature moving again. How those decisions play out will put Capitol Hill squarely in the national spotlight in the weeks to come.

Welcome to WashingtonWise Investor, an original podcast from Charles Schwab. I’m your host, Mike Townsend, and on this show, our goal is to help investors sift through the avalanche of news and information to better understand how this unprecedented crisis is affecting the markets.

Coming up in just a few minutes, I’ll be exploring the risks of Congress coming back to Washington, the challenges of operating the legislative branch safely, as well as what’s on the agenda that investors should be paying attention to.

But first, let’s look at other stories at the top of the news right now.

Last week saw the Senate and the House approve the so-called “interim” aid bill, adding another $484 billion to the more than $2.3 trillion in coronavirus aid funds that have already been approved.

The latest package added $380 billion to small-business loan programs while also allocating $75 billion to hospitals and $25 billion to virus testing.

The bulk of the small-business money went to jumpstart the Paycheck Protection Program, which provides forgivable low-interest loans to small businesses to help them cover two months’ worth of payroll, rent, and utilities. The program, which launched on April 3, had been suspended on April 16 when the first allocation of $349 billion ran out.

The program restarted on Monday but was plagued by what most people thought were technological glitches as banks scrambled to process hundreds of thousands of loan applications that were already in the queue.

But the Small Business Administration clarified late Monday that the program was running slowly on purpose—part of the agency’s new pacing system that limits the number of loans any one financial institution can process. It’s designed to ensure that the money gets spread around fairly. Some businesses and banks, however, claimed that the system felt more like a lottery, with only a handful of lucky winners getting the funds they need. And worries persist that, given the overwhelming demand, the second tranche of funds could run out by the end of this week.

The interim bill also replenished, to the tune of $60 billion, the Economic Injury Disaster Loan program—a separate Small Business Administration program that typically doles out rescue funds to businesses impacted by natural disasters, like hurricanes.

Elsewhere, this week the Internal Revenue Service recalled thousands of workers to deal with the ever-growing backlog of tax refunds, as well as the $1,200 direct payments to taxpayers that were part of the CARES Act, the massive $2.2 trillion aid and economic stimulus bill that Congress approved at the end of March. IRS officials told employees that the recall was voluntary but offered “incentive pay” to bring workers back to their offices. The agency said it would meet or exceed CDC guidelines for social distancing and other standards.

We reported on a recent WashingtonWise Investor podcast that the IRS had admitted that it had an overwhelming number of paper tax filings—many of them refunds—that were sitting unopened at the agency’s tax return centers. While about 90 percent of taxpayers file electronically, that still leaves 12 or 13 million taxpayers who file paper forms. The IRS has also said that only about 60 percent of the estimated 150 million stimulus payments have reached eligible taxpayers so far.

It’s not clear how many IRS employees have accepted the request to return to work, but the agency’s hope is that it can clear some of the backlog a little faster now.

Finally, investors should know that the Securities and Exchange Commission last week announced that it was forming an internal cross-divisional COVID-19 Market Monitoring Group. The group brings together senior officials across all the major divisions of the SEC to analyze the impact of the pandemic on the markets and investors and to coordinate with other financial regulatory agencies.

Now, at first blush, this seems like it’s a long overdue step—after all, it’s been more than two months since the February market high and the subsequent market volatility and turmoil. But actually, it appears to be more of a public formalization of work that has been going on behind the scenes for weeks. The SEC has actually been quite busy in addressing the pandemic’s impact on the markets, taking steps like temporarily easing some public company reporting deadlines, suspending trading in companies that have engaged in misleading or fraudulent statements about coronavirus-related products, providing guidance for conducting board and annual meetings in a time of social distancing, and many other steps to ensure the smooth operation of the markets.

But coordination across Washington’s half-dozen financial regulatory agencies is also going to be important in the months ahead, and that is a specific task assigned to this newly-announced group at the SEC. And that’s good for investors.

On my Deeper Dive this week, I want to share some thoughts on Congress—or at least part of Congress—returning to Washington next week. Here’s what to expect substantively, in terms of the next big economic stimulus and coronavirus aid bill that’s coming, but also what to expect logistically, in terms of the Senate and, eventually, the House of Representatives actually operating in a time of social distancing and fears about spreading the virus among a vulnerable population.

Let’s begin with the logistical side. The situation is tremendously complicated, and there are no easy answers. Leaders of both chambers have been wrestling in recent weeks with how and when to resume normal business. Members from across the political spectrum, on the right and on the left, have been agitating for getting back to work—in part because rank-and-file members have felt left out of the negotiations for the multiple aid bills that have already been approved. Those bills were negotiated by a tiny number of leaders of the two parties and administration officials, and the vast majority of members of both the House and the Senate have felt like they had no choice but to accept a bill on which they had no input at all.

But there are competing tensions between the desire to be working during a time of crisis and a desire to remain safe and healthy—and not everyone is happy to be coming back to Washington.

In announcing his decision on Monday to re-open the Senate, which was last in regular session on March 26, Majority Leader Mitch McConnell made explicit those competing tensions, saying, “We will modify routines in ways that are smart and safe, but we will honor our constitutional duty to the American people and conduct critical business in person. If it is essential for doctors, nurses, healthcare workers, truck drivers, grocery-store workers, and many other brave Americans to keep carefully manning their own duty stations, then it is essential for senators to carefully man ours and support them.”

Later on Monday, House leaders announced that the chamber would also return to session on Monday, May 4, and there was immediately blowback from members of both parties. One Democrat called the plan “dangerous.” Others raised concerns about airplane travel, about how they will care for young children who are at home and unable to go to school, about how many staff members they would be allowed to have, and about what protocols would be in place to ensure a safe environment.

A key concern is that the city of Washington remains under a stay-at-home order until at least May 15. Cases of the virus have not peaked yet in the District of Columbia or in neighboring Maryland and Virginia.

For the Senate, the stakes are high, particularly because of the fact that 48 of the 100 senators are 65 years old or older, including 14 over the age of 75—and senior citizens are the most vulnerable population.

In the House, the average age is about 58, but members range from 30 years old to 86. And at least 7 members of the House and Senate reported testing positive for the virus back in March, when the two bodies were last both in town. All have recovered.

Then there is the Congressional staff, which comprises nearly 20,000 people who work in the offices of senators, House members, committees, or in support roles for the institution itself. It’s unclear how many of them will have to return, but there have been reported cases of the virus among staffers, including 11 construction workers who contracted the virus while they were working on a renovation of one of the House office buildings.

In the end, concerns about ensuring the health of not just members of the House of Representatives but also of employees led to Tuesday’s decision by House leaders to reverse course and postpone the planned restart of regular sessions. For now, the House has not put an official restart date on the calendar.

Last week’s one-day session of the House of Representatives was an eye-opening illustration of the challenges. Because any single member of the House can object to an attempt to pass a bill by unanimous consent, House leaders called the chamber back into session on April 23. Now there are normally 435 members of the House, but there are currently six vacancies, so the current number is 429 members. Somewhat surprisingly, 394 of the 429 made it back to Washington to vote on the interim aid bill to add funding to the small-business loan program.

But doing so created surreal scenes of members of Congress speaking on the House floor wearing masks and gloves.

And when it came time for the two votes—one on appointing a special subcommittee to oversee coronavirus-related spending and the second on the emergency aid bill—unprecedented steps were taken.

A normal House vote takes 5 to 15 minutes, with all 400-plus members milling around the House floor and voting by placing an electronic card into machines scattered around the chamber. Last week, however, the House membership was divided into eight groups of about 55 members each, and each group had its own 10-minute window in which to come to the House floor and vote, maintaining social distance from other members.

There was a ninth 10-minute window at the end for anyone who had missed their scheduled window. As a result, each vote took more than 90 minutes. In addition, there was a 30-minute break in between votes so that the chamber could quickly be cleaned and disinfected.

House leaders have not yet announced whether that procedure will remain in place when the chamber returns, but the procedures from last week are likely to continue. That will make the transaction of ordinary business in the House exceedingly slow in the weeks ahead.

The Senate has also not yet announced the mechanics of debating and voting on the Senate floor, but it is expected that a similar approach will need to be taken.

But debating and voting on the floor is actually a relatively small part of the job of a member of Congress.

Much of the real work in Congress gets done at the subcommittee and committee level. A typical day in Washington is filled with dozens of committee hearings or what are known as “mark-ups,” when lawmakers literally mark up a proposed piece of legislation, voting in the committee on additions and changes as they go. It’s where the dirty work of turning an idea into an actual piece of legislation takes place. Most members have multiple committee meetings on a daily basis.

While most committees on the Senate side have perhaps 18 or so members, some House committees have 60 or more members. And there are few rooms in the entire Capitol complex that could accommodate that many lawmakers and the necessary staff and be able to maintain appropriate social distance.

So the plan is to figure it out on the fly. Committee meetings are expected to be staggered throughout the day. Senate leaders say they will make more announcements this week about how things will proceed when that chamber resumes.

And both chambers are also exploring the possibility of holding committee meetings remotely, something that has never been done in the 230-year history of Congress.

Now there are lots of questions about security, about protecting video hearings from being disrupted by hackers, about what happens if one member’s video feed goes down. And most of us are all too aware of these possibilities as we help our children switch to online learning or just when we hold a Zoom conference call with our relatives. But Congress is actively exploring whether at least some of the basics of daily life on Capitol Hill could be done remotely.

The House, once it reconvenes, is also likely to vote on a proposal to temporarily allow voting by proxy, where perhaps a local Congressman could vote the proxies of 10 of his West Coast colleagues so that they would not have to travel across the country. It would allow the House to operate with fewer people in the chamber and in the surrounding offices.

But it would represent an unprecedented change in how Congress operates. But that may be the only answer for unprecedented times.

Now let’s shift gears and talk about what lawmakers will do once they get here.

Substantively, the focus will of course be on drafting and ultimately approving the next coronavirus aid bill—known around Washington as “CARES Act 2,” because it is expected to supplement and build on the CARES Act law that was approved at the end of March.

While there has been an increasing amount of grumbling from conservatives that no one is paying attention to the ramifications on the federal deficit and the national debt of all this spending, pretty much everyone in Washington knows that another big bill is coming. The question is just how big.

Joe Biden said the other day that he thought the next bill should be “a hell of a lot bigger” than the CARES Act, which, of course, exceeded $2 trillion. I wouldn’t be surprised if the CARES 2 bill got pretty close to that—and maybe sails right past it.

Here are four key battle lines that I will be watching as the debate unfolds:

First, aid for state and local governments. This is the top priority for Democrats, who fought for more money in the interim bill but ultimately capitulated in order to get the small-business loan money out the door as quickly as possible.

The National Governors Association, which is led by Maryland Governor Larry Hogan, a Republican, and New York Governor Andrew Cuomo, a Democrat, has asked for $500 billion for states and local governments. House Speaker Nancy Pelosi has floated $700 billion.

Of course on the other side of the coin is Mitch McConnell, who recently suggested that states should just declare bankruptcy. But there is no way for states to declare bankruptcy under current law, and only Congress could change that law. So that’s not an option.

And indeed, McConnell, earlier this week, appeared to grudgingly admit that funding for states would be a part of this bill after several Republican senators broke with him to say they would support it.

So expect that to eventually be one of the cornerstones of the bill, but with a lot of haggling over the amount and what limits are put on how a state uses those funds.

Second, which parts of the CARES Act will get more money? It seems likely that another round of money for small businesses will be part of the mix, though frustration is high about the number of large businesses that received money in the first round. There is talk of a second round of direct payments to taxpayers. More money for hospitals and health care workers is likely—and there has even been talk of a hazard bonus for doctors, nurses, and other essential workers.

And there are ideas to go above and beyond. Pelosi, for example, has mused publicly about some sort of guaranteed income program—something Republicans are unlikely to embrace.

And Republicans have raised issues like including protection for businesses from coronavirus-related lawsuits—something Democrats are not enthusiastic about. So the battle lines are already being drawn.

Third, there appears to be a divide over whether this bill should include more forward-looking economic stimulus measures, such as an infrastructure spending package. The White House, which is eager to get the country back to work as quickly as possible, is likely to push hard for those kinds of measures. Democrats, on the other hand, seem to be thinking that this bill should remain focused on the immediate needs of the crisis, with a bill to jumpstart the economy waiting until the summer.

But the question of whether there will be another bill of this magnitude is one that will shape the debate behind the scenes. Treasury Secretary Steven Mnuchin said recently that he thought the forthcoming bill should be the last one, though he did say that Congress could reconsider that if necessary.

Finally, perhaps the most bitter fight ahead is one that actually has a relatively tiny amount of money attached to it—but which has taken on existential proportions to the two parties. And that is voting in the coming election.

Democrats would like to provide money—perhaps $2 billion to $4 billion—to help states transition to conducting voting by mail. But President Trump has asked Republicans to “fight very hard” against that, arguing that voting by mail risks fraud.

In recent days, top Democrats, including Joe Biden, have given voice to the idea that President Trump, who is currently trailing in the polls, wants to use the virus to postpone or cancel next fall’s election. It’s an extraordinary charge, and one that has both parties poised for an epic fight.

For investors, these questions are worth following over the next couple of weeks. How they get resolved will determine just what this next round of emergency spending looks like—and may go a long way to determining which businesses survive this crisis and which do not.

On my Election 2020 update, I want to take a closer look at the battle for control of the Senate, which has tightened in recent weeks. Republicans currently hold a 53-47 margin, so Democrats would need to net three seats if Joe Biden wins the White House—since the vice president has the power to break a 50-50 tie in the Senate—or four seats if President Trump is re-elected. Democrats only have 12 seats to defend this November, while there are 23 Republican-held seats up for re-election. But of the 23 seats Republicans are defending, 18 are in states that the president won by 10 or more points in 2016—in other words, states that are pretty solidly red. Those numbers seemed to give Democrats a relatively narrow path to the majority.

But over the last several weeks, that path looks better and better for Democrats. There is growing concern among Republicans that the president’s declining approval ratings could harm Republican Senators in tight re-election races. In the most recent Gallup poll, the president’s approval rating fell to 43% from 49% in the middle of March.

The other concern is the strong fundraising and polling performances of several key Democratic Senate candidates. The Cook Political Report, a non-partisan analysis of races, ranks the Senate seats in Arizona, Colorado, Maine, and North Carolina—all currently held by Republicans—as pure toss-ups. And it puts four more Republican-held seats, in Georgia, Iowa, Kansas, and Montana, as slightly favoring or “leaning” Republican, a rating that gives Democrats optimism that they could pick off one or two of these seats.

Meanwhile, just one seat held by a Democrat, the Alabama seat currently held by Senator Doug Jones, is considered in serious danger of flipping to the Republicans. And only one other seat held by a Democrat, in Michigan, is considered at risk, though the incumbent Democrat remains favored there.

Add it all up, and a spate of well-known election analysts, many of whom said Republicans are slight favorites to retain their majority just a few months ago, are calling the battle for the Senate a true toss-up right now. There’s obviously a long way to go until November, but the unpredictability of how the campaign will unfold amidst the ongoing pandemic has only further complicated the Republican effort to protect their Senate majority.

And the reason all this matters? While the presidential race will undoubtedly dominate the headlines in the months ahead, it’s the battle for Senate control that may be the most important factor in determining the legislative agenda in 2021 and beyond. Democrats are heavily favored to retain their majority in the House. If they can flip the Senate and Joe Biden can win the White House, then they will have complete control in Washington and will be able to push many of their legislative priorities through Congress. But if Republicans can hold on to the Senate, then a split Congress will almost assuredly result in more gridlock in Washington, no matter who wins the White House.

Well that’s all for this episode of WashingtonWise Investor. Please take a moment to subscribe so you don’t miss an episode. And if you like what you’ve heard, please leave us a rating or a review on Apple Podcasts or your favorite listening app—those ratings and reviews really matter.

For important disclosures, see the show notes or, where you can also find a transcript.

WashingtonWise Investor will be off next week, but we’ll be back with a new episode on May 14.

I’m Mike Townsend, and this has been WashingtonWise Investor. Wherever you are, stay safe, stay healthy, and most importantly, stay home. And keep investing wisely.

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