Your Weekly Report on the Discord from Washington, D.C.

In Partnership with the Eris Group

Powell named to Federal Reserve chair — President Trump announced last Thursday that he was appointing Federal Reserve Board governor Jerome “Jay” H. Powell to succeed Janet Yellen as Chair of the Federal Reserve System. Powell has served as a member of the Federal Reserve Board since 2012; he was reappointed in 2014 to a term that ends in 2028. An attorney and investment banker, Powell served as an Assistant Secretary and Under Secretary of the Treasury under President George H.W. Bush. Governor Powell pledged “to ensure that the Federal Reserve remains vigilant and prepared to respond to changes,” and Chair Yellen said she would work with him to guarantee a smooth transition.

Hensarling will not seek re-election — House Financial Services Chairman Jeb Hensarling (R-TX) announced last Tuesday that he will not run for re-election in 2018, ending his Congressional career after eight terms. “I never intended to make it a lifetime commitment, and I have already stayed far longer than I had originally planned,” he wrote in a letter explaining his decision. Hensarling noted that 14 months remain in his term, during which he would “continue the fight for individual liberty, free enterprise, and limited constitutional government.”

House leadership unveils tax reform plan — House Ways and Means Committee Chairman Kevin Brady (R-TX) announced the Tax Cuts and Jobs Act last Thursday, saying the bill would simplify the system on a permanent basis. Taxation Subcommittee Chairman Peter Roskam (R-IL) said that the bill meets reconciliation requirements and offers a 20% corporate rate and a 25% business income rate. The mortgage interest deduction would be grandfathered for existing mortgages, but capped at $500,000 of principal for new mortgages. The estate tax would be repealed entirely after six years, during which the exemption amount would be doubled. A base erosion regime would impose a tax on American companies that make payments to foreign affiliates, in an effort to bring these affiliates back to the U.S. The Ways and Means Committee will begin marking up the bill Monday, and Chairman Brady said he would bring it to the House floor this week.

Crapo, Warner seek updates on Treasury market reforms — Senate Banking Committee Chairman Mike Crapo (R-ID) and Senator Mark Warner (D-VA) sent a joint letter to the federal financial regulators last week to ask about the status of several pending initiatives. In a letter to the Treasury, Federal Reserve, SEC, CFTC, and FINRA, the senators commended the agencies for their work in preventing volatility, but asked for progress reports in seven areas related to reporting and transparency, including requirements that large broker dealers report their Treasury trades.

Huizenga hopes for committee action on capital access bills this year — In response to a question from Rep. David Scott (D-GA) at a hearing Friday morning, Rep. Bill Huizenga (R-MI), chair of the House Financial Services Subcommittee on Capital Markets, said he hoped the panel would act on three bills to expand small business access to capital before Christmas. The subcommittee heard testimony on three proposals designed to reduce regulatory burden and reverse the unintended consequences of new disclosure requirements. Subcommittee members expressed bipartisan concerns about capital moving from the private sector and state and local bonds into Treasury funds, and a willingness to address this through legislation.

Witnesses call for government guarantee, tax deduction for mortgages — Continuing hearings on housing finance reform, the House Financial Services Subcommittee on Housing and Insurance heard testimony Thursday from industry and consumer representatives, including the CEOs of the Mortgage Bankers Association, the National Association of Home Builders, and the National Association of Realtors. All the witnesses agreed on two fundamentals: an explicit government guarantee for mortgage-backed securities and the need to preserve the mortgage interest tax deduction. Subcommittee Chairman Sean Duffy (R-WI) said that he believed his constituents would prefer an increased standard deduction; Kevin Brown, testifying for the National Association of Realtors, strongly disagreed. Jerry Howard, CEO of the National Association of Home Builders, suggested a homeownership tax credit might be substituted for the mortgage deduction.

SEC’s consolidated audit trail needs data security protections — The House Financial Services Subcommittee on Financial Institutions and Consumer Protection began last week with a hearing to discuss data security within the financial system, with testimony from representatives of the private sector, consumer groups, and credit unions. Ken Bentsen, President and CEO of the Securities Industry and Financial Markets Association, warned that the Consolidated Audit Trail (CAT) now under development for the SEC could put customers’ personally identifiable information at risk. He called for legislation to require appropriate controls before this system goes live. Debra Schwartz, President and CEO of Mission Federal Credit Union, suggested that nondepository financial institutions be subject to data security requirements similar to those imposed on banks and credit unions under Gramm-Leach-Bliley.

E&C hearing discusses notification, penalties in Equifax breach — Congressional investigation of the Equifax data breach continued last week with a hearing before the House Energy and Commerce Subcommittee on Digital Commerce and Consumer Protection. Since consumers cannot “opt out” of providing their financial data to credit reporting agencies, members called for enhanced protection measures, including automatic freezes in case of data breaches. Rep. Joe Barton (R-TX) suggested that the time has come for fines and penalties, possibly on a per-consumer basis. Francis Creighton, President and CEO of the Consumer Data Industry Association, replied that credit reporting agencies already have powerful incentives to protect data, and said that penalties would not change their practices.

Senate Banking advances SEC, Mint nominees — The Senate Banking Committee voted unanimously last Wednesday to approve the nominations of Hester Peirce and Robert Jackson to serve as members of the Securities and Exchange Commission, and of David Ryder to serve as Director of the U.S. Mint. A floor vote has not yet been scheduled.

This Week in Washington:

November 6
House Ways and Means Committee will begin its markup of the Tax Cuts and Jobs Act. 12:00 noon, 1100 Longworth House Office Building.

November 7
Election Day: New Jersey and Virginia will elect new governors, while many state and local measures are on the ballot nationwide.

November 7
House Financial Services Subcommittee on Housing and Insurance holds a hearing entitled “Sustainable Housing Finance, Part III,” with testimony from industry analysts and academic experts. 10:00 a.m., 2128 Rayburn House Office Building.

November 7
Senate Committee on Banking, Housing, and Urban Affairs meets to consider S. 1591, the Banking Restrictions Involving North Korea (BRINK) Act. 10:00 a.m., SD-538 Dirksen Senate Office Building.

November 7
House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “Examining Federal Reserve Reform Proposals.” Industry analysts and academic experts will discuss three pending drafts of legislation. 2:00 p.m., 2128 Rayburn House Office Building.

November 8
House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “Administration Priorities for the International Financial Institutions.” The Honorable David Malpass, Under Secretary of the Treasury for International Affairs, will be the only witness. 10:00 a.m., 2128 Rayburn House Office Building.

November 8
Senate Committee on Commerce, Science and Transportation holds a hearing on “Protecting Consumers in the Era of Major Data Breaches.” Representatives of Equifax, Yahoo!, Verizon, and Entrust Datacard Corp. will testify. 10:00 a.m., SD-106 Dirksen Senate Office Building.

November 8
House Financial Services Subcommittee on Terrorism and Illicit Finance holds a hearing on “Financial Intelligence and Enforcement: Treasury’s Role in Safeguarding the American Financial System.” The Honorable Sigal Mandelker, Under Secretary of the Treasury for Terrorism and Financial Intelligence, will be the only witness. 2:00 p.m., 2128 Rayburn House Office Building.

November 9
House Financial Services Subcommittee on Housing and Insurance holds a hearing on “Sustainable Housing Finance: the Role of Ginnie Mae in the Housing Finance System.” 9:00 a.m., 2128 Rayburn House Office Building.

The Ellis Insight. Jim Ellis reports on political news:

> Senate

Alabama:  The Senate Leadership Fund, with close ties to Majority Leader Mitch McConnell, sponsored an Axis Research poll (10/24-26; 503 AL likely special election voters) that sees former state Supreme Court Chief Justice Roy Moore (R) expanding his lead over ex-US Attorney Doug Jones (D). According to the Axis results, Moore’s advantage is 56-39%. But, the researchers were concentrating on modeling conservative voters, so the numbers likely contain a Republican skew. They report that 43% of the respondents are Republicans, 27% Democrats, with 19% considering themselves Independent. These numbers are slightly out of balance for even a strong Republican electorate that exists in Alabama.

Arizona:  After originally saying he would seek re-election, four-term Rep. Paul Gosar (R-Prescott) now indicates that he is considering entering the newly open US Senate race. Though she hasn’t yet said anything public, rumors are heavy that Rep. Martha McSally (R-Tucson) is taking action to begin constructing a statewide campaign. Former US Rep. Matt Salmon (R-Mesa) also says that he is contemplating the race. University of Arizona Regent Jay Heiler (R) has formed a US Senate exploratory committee. Mr. Heiler was chief of staff to former Gov. Fife Symington (R), and was a key supporter of former Gov. Jan Brewer (R).

A new Digital Orbital survey (10/26-28; 500 AZ likely GOP primary voters) tested six potential GOP contenders, including former state Sen. Kelli Ward who has been running against Sen. Flake since the 2016 election ended. Ms. Ward leads the pack of prospective candidates, but the fact that she only tallies 26% after opening up large leads on Flake has to be a bit disappointing for the former state legislator. Close behind at 19% is Rep. McSally. Next, former Rep. Salmon posts 10% with Rep. David Schweikert (R-Fountain Hills/Scottsdale), former Rep. John Shadegg (R-Scottsdale), and Mr. Heiler recording 6, 4, and 1%, respectively.

Nevada:  JMC Analytics & Polling made headlines when the organization released a poll in August that placed GOP challenger Danny Tarkanian ahead of incumbent Sen. Dean Heller (R), 39-31% in next year’s GOP statewide primary. Now, the firm is out with a new poll (10/24-26; 500 NV likely Republican primary voters; automated), and the results again give the advantage to challenger Tarkanian. According to the data, the perennial candidate has a 44-38% edge over the first-term Senator who, like retiring Sen. Jeff Flake (R-AZ), has been under attack from President Trump. In a piece of good news for Mr. Heller, his favorability has improved to 51:43% from the poor 34:48% positive to negative ratio determined in the August survey.

> House

MN-8:  Businessman Stewart Mills (R) has held Rep. Rick Nolan (D-Crosby/Duluth) to consecutive close wins, with last November yielding a finish that left the two candidates languishing within just one percentage point of each other. But Mr. Mills announced Thursday that he will not make a third try in 2018. Currently in the race is St. Louis County Commissioner Pete Stauber (R), but his $117,000 so far in cash-on-hand is not particularly impressive. Originally considered a toss-up race, the early events suggest Mr. Nolan is in stronger re-election position than when the year began.

MT-AL:  New at-large Congressman Greg Gianforte (R-Bozeman), who was elected in the late May special election (50-44%) to replace Interior Secretary Ryan Zinke (R), is already drawing a large field of Democratic challengers. In the past few days, two former state legislators have joined the Democratic primary battle for the state’s lone congressional seat. Former state Sen. Lynda Moss (D-Billings) and ex-state Rep. Kathleen Williams (D-Bozeman) announced their candidacies that now expand the Democratic candidate field to seven contenders. Still, no word as to whether Democratic special election nominee Rob Quist will again run. Mr. Quist’s campaign spent more than $6.6 million during the special election contest.

PA-18:  Gov. Tom Wolf (D) recently scheduled the special election to replace Pittsburgh area resigned Rep. Tim Murphy (R) for March 13, 2018. The political parties will choose their nominee in special convention, and the first such vote will follow the November 7th local and judicial elections on Saturday, November 11th. Republicans will choose among four state legislators who have declared themselves as candidates, while Democrats will meet November 19th, to decide among five announced candidates. The eventual Republican nominee will be favored to hold the seat.

TN-7:  On Thursday, Franklin Mayor Ken Moore (R) announced that he will not enter the open 7th Congressional District race, still leaving state Sen. Mark Green (R-Clarksville) as the only announced candidate. Earlier in the year, President Trump nominated Sen. Green as Secretary of the Army, but the latter man withdrew when problems arose surrounding his confirmation. Rep. Marsha Blackburn (R-Brentwood) running for Senate leaves this western state Republican congressional district to be decided in the August Republican primary. A long time exists between now and the candidate filing deadline (will be set for a date in April), but Sen. Green obviously appears to be the man to beat at least in the early going.

TX-5:  Eight-term US Rep. Jeb Hensarling (R-Dallas) announced Thursday that he will not seek re-election, becoming the 21st Republican to take such action. The move coincides with his term-limited tenure as the House Financial Services Committee chairman scheduled to expire at the end of the current term. Mr. Hensarling was in no political trouble, as he easily won seven re-election victories after his initial open seat win in 2002. The east Dallas-anchored seat is safely Republican, so the GOP should have little trouble holding it in an open election next year. With veteran Rep. Sam Johnson (R-Plano) also retiring, the Dallas metro area will feature two open seats during the 2018 voting cycle.

TX-21:  Veteran Texas US Rep. Lamar Smith (R-San Antonio) announced late Thursday that he will bring his 32-year congressional career to an end when the current Congress comes to a close. Mr. Smith says he will not seek re-election to his 21st Congressional District that includes part of the San Antonio-Austin corridor and the prime Texas Hill Country region. The Congressman had not been seriously challenged since his first election in 1986, but his district could well be affected should the US Supreme Court uphold the lower court decision declaring adjacent District 35 illegal. Should a re-draw occur, Democrats might find themselves embarking upon a conversion opportunity.

> Governor

California:  Los Angeles Mayor Eric Garcetti (D) has long been considered a possible 2018 gubernatorial candidate, but actually appeared to be taking more concrete steps toward forming a 2020 presidential campaign than entering a statewide California race. Last week, the Mayor confirmed what most people believed would eventually happen.  Mr. Garcetti announced that he will not be a candidate for Governor next year, but him launching a long shot presidential campaign is still a possibility.

Colorado:  Last week, former five-term Colorado Congressman, 2008 presidential candidate, and twice failed gubernatorial contender, once as the nominee of the Constitution Party, announced that he will return to the Republican Party and again run for Governor. He joins a large GOP primary field that features state Treasurer Walker Stapleton and Arapahoe area District Attorney George Brauchler. Democrats are favored to hold the seat being vacated by term-limited Gov. John Hickenlooper (D). The party’s early leaders are US Rep. Jared Polis (D-Boulder) and Lt. Gov. Donna Lynne.

Florida:  Late last week, as long expected, wealthy Miami Beach Mayor Philip Levine officially joined the open Democratic primary for Governor. With the other major Democratic candidates coming from Tallahassee, Mayor Levine is so far the strongest person to hail from populous South Florida. A reported new St. Pete Polls survey finds former US Rep. Gwen Graham (D-Tallahassee) leading Tallahassee Mayor Andrew Gillum, Mayor Levine, and businessman Chris King for the Democratic nomination, 31-13-6-5%, respectively. Gov. Rick Scott (R) is ineligible to seek a third term.

Nevada:  As expected, Nevada Attorney General Adam Laxalt (R) officially declared his gubernatorial candidacy Thursday and immediately assumes the favorite’s position. Mr. Laxalt now faces state Treasurer Dan Schwartz for the Republican nomination. A tough general election will follow in what is becoming one of the nation’s top swing states. Democratic announced candidates include two Clark County Commissioners, Steve Sisolak and Chris Giunchigliani. Gov. Brian Sandoval (R) is ineligible to seek a third term.

New Jersey:  Polling has been consistent throughout the general election cycle, and former US Ambassador to Germany and Wall Street executive Phil Murphy (D) is primed to clinch victory Tuesday night. The latest poll is typical of previous margins. Monmouth University conducted their last poll of the gubernatorial cycle (10/27-31; 529 NJ likely voters) and finds Mr. Murphy holding a strong 53-39% advantage over Lt. Gov. Kim Guadagno (R).

Ohio:  State Supreme Court Justice Bill O’Neill has been talking about entering the Democratic gubernatorial primary for months. Now, he says he will do so in February when he retires from the bench. The move is an interesting one for a potential candidate who said he would not run against Consumer Protection Financial Bureau director Richard Cordray (D), a former Ohio Attorney General. It was believed that Mr. Cordray was returning to Ohio in September to announce his gubernatorial effort, but such has still not happened. Therefore, the O’Neill announcement could well be the final signal that Cordray will not become a 2018 candidate.

Virginia:  As the regular statewide election comes to a close, ten gubernatorial polls have been conducted since October 15th and, by and large, they show a close finish developing between Lt. Gov. Ralph Northam (D) and former Republican National Committee chairman Ed Gillespie. Removing the Hampton University study that found Gillespie leading by eight points, and the two Quinnipiac University surveys that projected Northam being up 14 and 17 percentage points, the average Democratic lead is only 3.7 points. The open seat election is Tuesday. Gov. Terry McAuliffe (D) is ineligible to seek a second term.