Fall 2021
This quarterly newsletter provides perspective, framing and political insight into business-government relations with the current Congress and the Biden Administration. Larry Parks and Tim Simons, as experienced, seasoned government relations professionals, know that business likes certainty. Certainty in the public policy/business relationship requires insight, analysis, and some forecasting so that business strategists can effectively factor in the political risk in which they operate. That is; both risk and opportunity to meet business and government objectives.
Hope you enjoy!
1 Promises Made, Promises Kept
Less than a year in the White House, President Joe Biden is using every available tool in his toolkit—legislation, regulation, executive orders, budgeting, and appointments—to transform his campaign rhetoric into government policy, a demonstrable change from many former presidents. On the campaign trail, Biden promised to use the government to reorder how business relates to workers and ensure that communities long denied opportunities for social and economic mobility—particularly African American communities—build equity and wealth in American society.
The consistency between candidate Biden and President Biden presents a unique opportunity for businesses to engage with state, federal, and local governments, helping shape policy in service of Biden’s twin goals: Improving the public good, and generating growth opportunities for American industry and workers.
During the campaign, Biden pledged to change how the government relates to business and how businesses relate to their workers and consumers, while at the same time providing concrete opportunities for marginalized communities to improve their economic standing. The nucleus of Biden’s agenda is helping workers unionize, increasing competition among businesses to benefit consumers, and advancing racial equity through housing, community investments, corporate policies, and government contracting.
While the full scope of Biden’s governing agenda takes shape through appointments and legislation, the $1.9 trillion American Rescue Plan Act and the $1.2 trillion infrastructure bill-- two signature spending packages passed during the first year of his administration -- are already at work, stimulating the economy in signature Biden fashion. The money approved in those bills is now flowing, in earnest, to state, local and tribal governments, rippling through every segment of the public and private sector. Intended to jump-start an economy stalled amid a once-in-a-century global pandemic, the massive spending packages offer a glimpse of Biden’s governing philosophy.
The American Rescue Plan Act provides $350 billion to state and local governments to replace tax revenue and other income lost during the COVID-19 lockdown. The goal: Preventing steep state and municipal budget cuts and layoffs while encouraging spending on local water, sewer, and broadband infrastructure upgrades. But many local governments are using the money to invest in under-developed communities, supporting Biden’s plan to reduce economic inequality, particularly in housing and community development.
Because localities have flexibility and latitude in how these funds–and, potentially, future federal allocations--are spent, business leaders have a unique opportunity. They can engage with local leaders and the federal government to help shape how those dollars are spent, particularly in ways that can grow local industries and strengthen communities.
Following up on his promise to support labor unions and empower workers’ push for higher wages and more robust benefits, Biden has backed the Protecting the Right to Organize Act. The legislation, which the House approved in March, significantly bolsters workers’ rights and protections by:
Expanding the categories of workers covered by federal labor standards.
Empowering unions to encourage non-union workers to participate in “secondary” or “solidarity” actions during a labor strike.
Prohibiting the use of replacement workers during a strike and banning retaliatory actions against striking workers.
Preventing employers from requiring or coercing employees to attend meetings or presentations that argue against or discourage union membership.
Tightening National Labor Relations Board penalties for companies that break NLRB rules.
Additionally, Biden supported a campaign in Alabama, in which Amazon workers organized to form a union. The vote to unionize ultimately failed, but an investigation found that Amazon interfered with the election and the NLRB has called for a re-vote.
Biden’s pro-union agenda may be an anathema to some business owners, but the president has also provided businesses with new funding resources while also redirecting existing federal procurement policies to prioritize the purchase of American-made manufacturing goods. The move is intended to support and grow the domestic supply chain.
At the same time, Biden has issued executive orders that will:
Increase the value of American-made component parts in taxpayer-purchased products, from 55 percent to 60 percent, with a phased increase to 75 percent.
Strengthen domestic supply chains for critical goods, with new price preferences for domestically-produced products.
Under Biden’s Made in America and Buy American Act initiatives, the federal government has increased spending on domestically-manufactured products by $2 billion. Moreover, in the infrastructure bill, the president has set aside $750 million to build or retrofit manufacturing plants to meet clean-energy goals in fossil fuel-dependent regions of the country.
These plans define the Biden administration’s agenda and can help Congressional Democrats make compelling arguments to businesses as well as voters heading into the 2022 midterms. They also help Biden make a strong case: That government policies and spending can benefit businesses while directly addressing the financial and social needs of working-class people — white and Black. And only the federal government can stimulate the economy in the short and long term while simultaneously helping to redress historic financial inequalities and promote inter-generational wealth creation.
Simply put, these measures—along with other significant indicators highlighted below and in future newsletters — indicate Biden’s domestic agenda is a significant shift from that of his immediate predecessor, Donald Trump, but also of the two previous Democratic occupants of the White House.
2 Business Leaders Must Think Strategically
With an increase in federal spending at all levels of society, how can businesses access those resources to amplify their own objectives as well as maximize social good?
What does this mean?
Expect the White House to pursue an activist agenda, prioritizing the interests of workers and helping historically-underrepresented communities in ways that can give American industries the best opportunities to compete at home and abroad. Consequently, the business sector will need to reimagine and reinvent how it engages with the White House and state and federal regulatory agencies, as well as lawmakers and their staff on Capitol Hill.
The recent fight over whether to extend the federal eviction moratorium is a prime example.
With Congress unable to prevent the moratorium from lapsing – and Biden declaring his hands were tied—progressive activists, led by freshman Rep. Cori Bush (D-MO), staged a high-profile protest on the steps of Congress. The move made national headlines and put pressure on the Biden Administration to do something. The president
announced he would extend the eviction ban for two additional months, despite having argued earlier that the federal courts wouldn’t uphold executive action on the issue.
The Biden administration reversed itself not only because of progressive Democratic pressure but also because the housing industry failed to give the White House any constructive alternatives. By only declaring opposition to the moratorium extension, Biden gave the industry precisely what it didn’t want: a longer eviction moratorium.
Is it a harbinger of things to come? It doesn’t have to be—if industry leaders rethink how it engages with legislators and policymakers in Washington.
In order to work with and influence Biden’s Washington, business leaders need to look at the current legislative and regulatory agenda from the president’s perspective. At its core, Biden’s governing strategy is to use government to design social and economic policies that can address historical disparities and injustices through equitable distribution of resources.
A primary example of Biden’s philosophy is July’s executive order, “Promoting Competition in the American Economy.” It’s an all-out effort to reshape the business landscape after more than two decades of corporate consolidation in various industries. Fundamentally, the order rests on the notion that mergers and acquisitions have harmed workers and consumers, and ultimately the American economy. Unlike previous administrations on the left and right, Biden’s order recognizes consolidation as a source of stagnating wages, higher prices for consumers, and a lack of innovation among businesses. This is the Biden administration’s starting point.
To successfully engage the White House, regulatory agencies, and Congress, business leaders need to acknowledge Biden’s premise, and provide data to argue the contrary, or demonstrate how their business can right the perceived wrongs.
For instance, the Biden Administration has indicated it will be less receptive to industry arguments about promoting innovation or increasing access to capital if the former results in the loss of jobs and the latter saddles borrowers with staggering debt. Instead, efforts to reduce the cost of capital while reinvigorating a new social contract with workers will likely have greater sway.
While the Biden Administration is more ideologically, organizationally, and intentionally focused on reordering Washington’s relationship with the business community, it is also more open to cooperative engagement. It offers significant occasions for businesses to work with the White House to shape government policy that can create growth opportunities.
Key Takeaway
Seek new opportunities. With the federal government more engaged in stimulating the economy, examine how to take advantage of the government as a partner in your industry.
What Next?
While the SEC has traditionally required disclosure of financially material information, the current leadership has made it clear that future reporting of information relating to Environmental, Social, and Governance will not be limited to financial relevance.
As the Biden Administration fills senior agency positions, businesses can expect regulatory oversight to increase significantly. Gary Gensler, the Securities and Exchange Commission chairman has made oversight a centerpiece of his governing agenda. In March, before Gensler’s confirmation, the agency called for public comments ahead of a potential new rule requiring climate-related disclosures in public company filings. Furthermore, in a recent Tweet, Gensler indicated he intends to instruct SEC staff to consider a range of factors, including workforce turnover, skills and development training, compensation, benefits, workforce demographics including diversity, health, and safety.
The recent repeal of the Office of the Comptroller of the Currency’s “true lender” rule regulation, which would have expanded bank-nonbank partnerships, is another example of the challenges industry is likely to encounter in the absence of proactive and constructive engagement. While some heralded the true lender rule, arguing it would give underserved communities favorable loan rates, opponents contended it would give cover to predatory lenders, allowing them to skirt state laws limiting interest rates.
Biden, however, signed a Congressional Review Action resolution into law, legislation that had bipartisan support in both the House of Representatives and the Senate. It overturned the OCC’s rule, to applause from consumer advocates and state banking authorities.
The president’s support of a bipartisan reversal of the OCC’s regulation is notable, not just because it was done over the objections of banks and the financial technology sector, but because the financial industry didn’t offer the White House a viable alternative. Unless business and industry leaders engage with progressive Democrats in Biden’s party—lawmakers who are predisposed to curb the expansion of technology-based financial products—before legislation is written and sent to the White House, similar setbacks could be on the horizon.
The Federal Deposit Insurance Corporation rule allowing the charter of industrial banks paves the way for fintech’s to enter the banking sector. But it could be another short-lived victory if the industry responds the way they did to the OCC’s “true lender” rule, which clarified that a national bank was the true lender of a loan , or that bank funded the loan. Part of the discussion around the ILC charter—state-chartered financial institutions that are not federally regulated but are regulated by the state banking agency—is whether the rule is a work-around that just two states, Utah and Nevada, should benefit from. That debate, however, needs to be expanded.
Those interested in ILC charters should consider building solutions to vexing policy questions, including how to create financial products for the unbanked and how to move families from high-interest-rate products to lower-interest-rate products while ensuring access to credit for these families as they transition. Providing bank charters—whether state-chartered, federally-chartered or ILCs—can be vehicles to move low-income families to lower-cost financial products and to build banking relationships. The status quo, without ILCs and online lenders, likely will not yield lower-cost products for at-risk families that demonstrate their ability to manage credit.
Adopting a duck-and-cover strategy in this political environment is risky. Advocates are filling the void on what consumers want and need with disregard for market forces. The points of contention range from concerns over banking and commercial consolidation, encroachment of consumer data, and algorithms that may disparately affect lending to people of color.
3 Avoiding the crisis:
Business leaders must recognize that the political climate in Washington has changed. The Biden administration and Congressional Democrats are committed to reshaping the relationship between businesses and workers to advance social and economic mobility as well as wealth creation.
Get Infront of the Action: Organizing to lobby against change and force stalemates are legitimate methods to block White House regulatory policy shifts. Sometimes this works, especially in divided government, where one party controls the White House while the other party holds the Senate or the House. With Biden presiding over a unified government, this method is often less effective. A more effective strategy is to help shape the policies under consideration, creating a limited win-win for both business leaders and lawmakers or regulators.
On the issue of new bank charters, ILCs online lending and Fintech expansion, one of the great risks is that the FDIC, OCC and the Federal Reserve goes their own way on priorities, exam policies and guidance, and the financial industry is whipsawed. Lending in distressed communities and to diverse populations has the potential to be such an area for regulatory fiat and business uncertainty.
If business leaders laid a framework for how the Community Reinvestment Act (CRA) could be implemented under a national market framework, what changes examiners would need to make and methods to measure community impact where deposits or significant activity is attached to a lender, it could jump-start a conversation with regulators and legislators before their positions are etched in stone. Moreover, the discussion could prompt a dialogue about how consumer lending and the secondary market for MBS or CLOs securities could be strengthened if Fannie Mae, Freddie Mac and other portfolio lenders are allowed to be both well capitalized and take riskier loans. Such a change could help the populations that the Democratic Congress and the Biden administration want to serve.
4 Take Diversity, Equity and Inclusion Seriously.
Using federal policy and spending to advance racial and economic equity is an essential element of Biden’s agenda. It is of great interest among Congressional Democrats, as well. Proposals that fail to account for this will not likely generate much interest or support.
The Biden Administration’s economic and social policy agenda rests on remedying racial and other historic disparities and injustices. In addition to budget proposals that increase federal housing and infrastructure investments in communities that have been under-resourced for generations, the American Rescue Plan Act and American Families Plan spending packages included funds earmarked specifically for minority business owners.
The White House sought and secured $4 billion in debt relief to help socially disadvantaged farmers and ranchers, defined by the government as those who are Black, American Indian or Alaskan Native, Hispanic, Asian and Pacific Islander. Although the program has been temporarily blocked by a federal judge pending a legal challenge, the Biden administration has defended the program, arguing that the government has a compelling interest to remedy the Department of Agriculture’s historic pattern of racial discrimination in loans and other funds.
Despite the legal setbacks to similar legislation that would provide federal assistance to Black restaurant owners, the Biden Administration remains committed to using executive action to promote and achieve diversity, equity, inclusion and accessibility throughout the federal government.
In June, Biden issued a directive following up on his Inaugural Day pledge to implement a “whole-of-government equity agenda.” The order:
Establishes a government-wide diversity and inclusion initiative in its workforce that will be led by the Office of Personnel Management (OPM) and the Office of Management and Budget (OMB).
Charges federal agencies with identifying, within 100 days, racial barriers to employment and developing strategic plans to eliminate them;
Reduces the government’s reliance on unpaid internships, an impediment to low-income students;
Advances pay equity to ensure that all employees are fairly compensated.
Not limited to racial and gender diversity, the executive order includes immigrants, people with disabilities, LGBT individuals, and other historically disadvantaged groups.
Following Biden’s lead, regulators likely will take a critical look at businesses that have practices or institutional biases that perpetuate racial inequalities, such as Fintech and banking products that assessed higher fees to borrowers who are alumni of historically black colleges or institutions (HBCUs) compared with borrowers who attended a predominately white institution. There may be opportunities for lenders and minority business owners to tell their stories about bank policies that effectively restricted lending to minority start-ups or small-business owners – enterprises banks deemed as “risky” --and penalize lenders that provide credit to them. The Biden Administration could call out those practices through interagency processes with federal regulators; meanwhile, lenders and minority businesses could establish best-practice guides and seek regulatory approval.
Moreover, lenders and minority businesses, especially in the real estate sector, could help policymakers create practices to help make the secondary housing market more useful for loans in minority communities and to minority families. And, through regulatory and guideline changes from agencies, lenders could be rewarded or encouraged to make loans that expand business opportunity, homeownership, or intergeneration real-estate transfers among minority families and in minority communities. Currently, lenders are unable to use their creativity and talents to effectively address the wealth gap problem.
Likewise, lawmakers are seeking to establish or expand the role of federal agencies in achieving racial and economic equity. A bipartisan amendment in the Senate infrastructure bill `would make the Minority Business Development Agency permanent and the authority to provide resources for minority-owned business and business to underserved communities.
Where do we go from here?
We want to partner with you to develop strategies to shape the legislative and regulatory landscape around these and other critical issues in 2022 and beyond. Contact us to learn how.