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CROMNIBUS PING PONG:  If it sounds like a bad movie, that’s because it is. And, unfortunately, governing by CR (now the fifth) has become the new norm in Washington. House Republicans forged ahead last night passing a stopgap measure 245 to 182 partially funding the government six more weeks through March 23 with full funding for defense for FY18. The Senate will consider the measure, aka a ‘Cromnibus’ given the blend of CR and omnibus spending, as soon as today and will likely remove the defense language while simultaneously working on a two-year compromise to raise budget caps to ~300B for both defense and non-defense spending and providing billions of dollars more for nondefense programs that are outside the constraints of the caps imposed through sequestration. Both Majority Leader Mitch McConnell and Minority Leader Chuck Schumer sounded optimistic that a deal could be struck in time for the language to be attached to the House bill.  Talk of attaching language to raise the debt limit to the House CR was circulating throughout the day and evening yesterday.  While the Senate may act to raise the limit, the House is a whole different animal.

The win in the House was predictable once defense hawks and conservatives were mollified with full funding for the Pentagon and once again all eyes turn to the Senate while they determine their course of action with seemingly no real endgame in mind. House Republicans are prepared for the legislation to 'ping-pong' back over to their side of the dome with changes from the Senate.  We expect the Senate to remove the defense spending component of the House Cromnibus and either send that package back to the House or add in a combination of a caps deal, debt ceiling and $81 B in disaster relief.  House Republicans will then be faced with a decision to take the new Senate version or face another shutdown tomorrow at midnight. We reiterate that there appears to be no stomach for a shutdown - at least at the Capitol end of Pennsylvania Avenue.

NEXT STAGE FOR DACA?: We believe (hope) the end is near for this exercise in futility in coupling DACA to government funding legislation. Immigration policy has polarized inter- and intraparty relations for over a decade with little or no progress made since the inception of the debate and many of the players in this round are too entrenched in their positions. With that, should the government stay open this week (and we currently believe it will) and no DACA compromise is found, then Majority Leader Mitch McConnell will bring DACA to the Senate floor next week.  No one quite knows what form the legislation will take – and President Trump threw cold water on yet another bipartisan compromise bill sponsored by Senators John McCain (R-AZ) and Chris Coons (D-DE) that mimics a bill in the House with 54 Republican and Democrat cosponsors.  The McCain/Coons bill is a scaled-back approach to DACA and border funding - countering a more robust approach offered by President Trump (SOTU four-prongs) - underscored by its lack of immediate funding for a border wall. Many view their effort as the best opportunity for a base bill to start negotiations with the backdrop of Trump not looking to extend the March 5 deadline when the work permit clocks start to expire for the DACA population.

BREACH BRAWL: Another partisan brawl is in the works now that acting CFPB Director Mick Mulvaney has backed off yet another Cordray-era remnant launched at the agency after Equifax’s data breach. Senate Banking Committee members led by Senators Mark Warner (D-VA) and Elizabeth Warner (D-MA) have called for reform s holding Equifax accountable for the September 2017 debacle in the face of Mulvaney backing off issuing subpoenas in the case – which is a routine step when launching a full-scale probe. The CFPB has also scuttled “plans for on-the-ground tests of how Equifax protects data,” also put in motion by Cordray.  Treasury Secretary Steven Mnuchin was pressed on the issue by Democrats at a hearing yesterday and promised that he’ll  “ensure the Financial Stability Oversight Council discusses the CFPB's investigation into the massive data breach at Equifax,” and he’ll take it up with Mulvaney as well.  That is going to be one interesting conversation.

SCHIFFTING GROUND: Trump has three more days to decide whether to release the House Intelligence Committee’s Democratic memo rebutting charges made in last week’s Republican memo spearheaded by Committee Chairman Devin Nunes (R-CA).  We’ve said before that the Intelligence Committees typically work hand-in-glove given the implications to national security, but relations between Nunes and ranking member Rep. Adam Schiff (D-CA) have reached an all-time low further darkening the drawn-out drama. Should the Trump Administration object to the Democrat’s memo release (they’re already claiming it’s longer), then watch for already hot tempers on Capitol Hill to boil over leading up to a showdown for a vote in the full House.  The sequence according to Kyle Cheney:  1. "If Trump objects to its release, the Intel Committee then votes on whether to send it to the full House. 2.If the Committee votes to send it to the full House, then any single member can force a secret session to vote on overruling the president. 3. One twist though: If Trump disapproves, it would force lawmakers to release information that is still CLASSIFIED. By declassifying the Republican memo, Trump gave lawmakers cover from attacks they were revealing classified intel."

 HOUSE CROMNIBUS:

  • Extends government funding to March 23, 2018

    • Includes anomalies requested by the Administration and continues the extension of the National Flood Insurance Program (NFIP) for the duration of the CR
      • $225 million for SBA’s Disaster Loan Program to provide assistance to homeowners and businesses trying to recover from the hurricanes
      • $51 million to avoid delays in preparation for the 2020 Census
      • Authorizes the Department of Energy to make sales from the Strategic Petroleum Reserve
      • Provides operating funds for the Southeastern Power Administration, which are fully offset by collections from power customers
  • FY18 full-year Department of Defense Appropriations 
    • A total of $659.2 billion for full-year funding for the Department of Defense, including $584 billion for base and $75.1 billion for OCO
      • Funding is fully consistent with the enacted FY18 NDAA
    • Includes $1.2 billion requested by the President for 3,500 additional troops in Afghanistan, funds the 2.4% pay raise for the troops, and increase in end strength for the Active Duty, Guard, and Reserve troops
    • The House passed a nearly identical bill (H.R. 695) last week by a vote of 250-166
  • Health Extenders 
    • 2-year extension of Federally Qualified Health Centers (community health centers)
    • 2-year extension of Public Health Programs
    • Averts FY18 and FY19 Medicaid Disproportionate Share Hospital Reductions
    • Provides for permanent Medicare improvements:
      • Repeal of the Medicare payment cap for therapy services
      • Removal of the rental cap for durable medical equipment under Medicare with respect to speech generating devices
      • Extension of Special Needs Plans in Medicare Advantage
    • 2-year extension of Medicare policies:
      • Funding for quality measure endorsement, input, and selection
      • Medicare-Dependent Hospital and Low-Volume Hospital programs
    • 5-year extension of Medicare policies with reforms:
      • Home health rural add-on payment
      • Ground ambulance add-on payments
      • Ground ambulance payment modifications

PENTAGON WILL BE FINE ON OTHER SIDE OF CR SPASM: Our Senior Defense Analyst General Emo Garder writes while a full year DoD budget may not be included in this week's CR, both sides have agreed on an eventual level of discretionary spending.  Read his piece here.

VERIZON'S 5G LEAD (VZ, T, CCI, ZAYO, DY): Our Senior Telecom and Media analyst Paul Glenchurt writes that a hard push for upper band auctions this year, delays likely reinforce Verizon's 5G lead. Paul's piece here.

SYRIA | SLIDING INTO A STRATEGY?: General Dan Christman writes on the emerging angst with U.S. strategic interests in Syria.  Read his latest piece here.

IT'S A MAD, MAD, MAD, MAD WORLD:  The global scene is more confusing and jumbled now than we have witnessed in at least half a century. But amidst this bedlam, what are the true geopolitical risks that could impact business investment and operations? General Dan Christman will discuss what he sees as a small group of top risks, and where business leaders need to be vigilant on a broader range of secondary issues. Join us on Friday, February 9th at 10am ET.  Dial-in details here.

LEGAL CATALYSTS: FEDERAL COURT CLEARS PHH OF KICKBACK LIABILITY (PHH): As we anticipated, a federal appeals court lifted a $109 million penalty against PHH Corp. in a high profile constitutional case.  Read Paul Glenchur's piece here.