Penn Hill Group

1. Penn Hill Group Presentation for the NCHELP Legislative Conference Vic Klatt Alex Nock

2. Federal Update The Four P’s: Process People Politics Policy

3. Process • The 112th Session: “The Gridlock Congress” • Very little major legislation, but some steps taken on education issues --policy direction more in focus • The budget mess: • The 6 Month Continuing Resolution – what it really means • Sequestration • The Remainder of FY13 • The (really) lame duck session • Taxes (Payroll taxes, AMT, Cap Gains, Bush Tax Cuts, Extenders), Doc Fix, Sequester, Debt ceiling

4. Process Congressional Gridlock = Administration takes matters into their own hands, i.e. new regs., waivers Many new regulations have the potential to be game changers – could impact education policy for years; procedurally tough to overcome for a new Congress and/or President Because of past gridlock, Congress will face an unprecedented situation in which nearly every major education law will be scheduled for reauthorization: ESEA, HEA, WIA, CTE, CCDBG, IDEA, & Welfare

5. One Thing is Certain: The Players of Education Will Change The Administration: lots of turnover no matter who wins Big changes in Congress on key Ed Committees, especially if control changes Intra-party battles will be more important than inter-party battles with each party becoming more unified than ever

6. Fewer Mavericks, More Polarization National Journal Vote Ratings in the Senate* 1982 – 2011 Most liberal Republican senator Most conservative Democratic senator • Over the past three decades, overlap between GOP and Dems has been disappearing, resulting in more polarized Congress 2011 House Observation: “With a 25-seat majority, you need to be together in order to govern. With so many new members comes the challenge of getting everyone’s expectations to be reasonable and having unified goals.” Rep. Aaron Schock (R-IL)

7. Politics: Macro Level It’s All About the Election National Journal Scenarios Penn Hill Group’s Take The Impact on Higher Education Policy

8. The Five Likeliest Scenarios Scenario 4: GOP Sweep Scenario 5: Dem Sweep Scenario 3: GOP President National Journal

9. Scenario #1: Status Quo Overview Split Control: Déjà Vu All Over Again? Gridlock Isn’t the Guaranteed Outcomeof a Continuation of the Status Quo • Margin of Majority ControlElection Victories Won by a Narrower Margin Than 2008 • Possible outcomes: • Health care reform law remains intact. • Dodd-Frank financial reform law remains intact. • Obama and Congress attempt a “grand bargain” on deficit reduction and succeed. The deal curbs entitlement spending and overhauls the tax code. Bush tax cuts trimmed for upper-income taxpayers under deal. • Or…Obama and Congress attempt a “grand bargain” on deficit reduction and fail. Entrenched party positions on entitlements and taxes prove too difficult to surmount. Some deficit reduction continues through automatic sequestration. Source: National Journal Member Research, 2012.

10. Scenario #2: Clean Divide Overview Clean Divide: Clash of the Titans Hand-to-Hand Combat on Everything?Or Peace Agreements on a Few Key Issues? • Margin of Majority ControlElection Victories Won by a Narrower Margin Than 2008 • Possible outcomes: • Health care reform law remains intact, but GOP Congress attempts to reduce funding for core elements through “reconciliation.”Obama veto would block GOP’s reconciliation attempts. Maneuvering for leverage would ensue. • Dodd-Frank financial reform law remains intact because Obama veto keeps GOP Congress from enacting repeal; GOP Congress attempts to reduce funding for core elements through “reconciliation.”Obama veto would block GOP’s reconciliation attempts. Maneuvering for leverage would ensue. • Obama and Congress attempt a “grand bargain” on deficit reduction and succeed. The deal curbs entitlement spending and overhauls the tax code. • Obama and Congress attempt a “grand bargain” on deficit reduction and fail. GOP Congress pushes to minimize impact of sequestration on defense, risking an Obama veto. Source: National Journal Member Research, 2012.

11. Higher Education Policy under Split Control scenario • Education could receive significant attention as the President looks for possible victories outside of budget policy • Signature Obama initiatives continue: Community College agenda, regulatory expansion – with more to come • HEA Reauthorization possible, but big differences on issues like for-profits, Pell, and accreditation among others • Muddled outlook for student loan industry; Administration still likely to push cuts to pay for Pell and Interest Rate fix • Education Funding Outlook stable with moderate increases possible to larger programs -- Pell likely to receive increase, and interest rate fix on the table once again

12. Scenario #3: GOP President Overview GOP President, Senatorial Privilege Checkmate Alert • Margin of Majority ControlIf Democrats pull together, they have the power of the filibuster • Possible outcomes: • GOP House moves on Romney agenda but Democratic Senate resists • Tax cuts and tax reform, health care repeal, energy exploration and re-writing Dodd-Frank run into filibuster barrier, handcuffing Romney on big-ticket items • Romney would face choice between House GOP base and persuadable Democratic senators. Wooing one means alienating the other, vastly complicating Romney’s calculations and running room • Ryan budget and its entitlement reforms collapse in face of Democratic filibuster threats, increasing pressure on Romney to raise taxes to secure some variation of entitlement reform • Energy agenda would stall unless Romney bids up “green” investments Source: National Journal Member Research, 2012.

13. Higher Education Policy under Senatorial Privilege Scenario Education takes a backseat to taxes, healthcare, military, and transition issues in new Administration Signature Obama Higher Education regulatory initiatives not likely to remain HEA Reauthorization chances decrease as Romney works to formulate a new agenda more likely to emphasize private sector innovations and increased accountability for all sectors Senate Democrats continue efforts to criticize private sector Higher Education players Improved outlook for private sector lenders, with much lower likelihood of potential cuts and an outside chance of a new private sector loan program Education Funding Outlook less stable as overall spending likely to decrease –changes to Pell to reduce costs more likely, and interest rate fix becomes more complicated

14. Scenario #4: GOP Sweep Overview GOP Sweep: The Right Stuff Winning Parties Often Overreach –Could Republicans Avoid the Temptation? • Margin of Majority ControlNarrow Margin of Victory Necessitates Stronger Party Cohesion • Possible outcomes: • Health care reform law repealed under “reconciliation” process that circumvents Senate filibusters. • Spending devoted to Dodd-Frank financial reform bill reduced or eliminated under “reconciliation.” • If Congressional Republicans fail to repeal health reform and financial reform, Congress hampers implementation by refusing to fund core provisions. • Republicans fashion major deficit-reduction measure, fundamentally changing Medicare and Medicaid to reduce the government’s role in the programs, cutting spending for education, environmental regulation, transportation, overhauling tax code to cap federal revenues as a percentage of GDP. Source: National Journal Member Research, 2012.

15. Higher Education Policy under GOP Sweep scenario Education takes a backseat to taxes, “Obamacare,” military, and transition issues in new Administration Signature Obama initiatives not likely to remain and regulatory threats to all members of the higher ed community lessen HEA Reauthorization chances decrease as Romney formulates his agenda, and Democrats and outside Allies dig in Chances for Federal government/private sector partnerships increase, including in the student loan arena Education Funding Outlook less stable as overall spending likely to decrease – including for Pell Grants and student loan interest rates

16. Scenario #5: Dem Sweep Democratic Sweep: Vintage Vindication Consolidation of First Term Victories; Expand to Education and Immigration • Margin of Majority ControlNarrow Margin Offset by Revived Mandate • Possible outcomes: • Obama secures funding and bureaucratic foundations for Dodd-Frank and health care • Obama cancels high-end Bush tax cuts after recessionary fears ease and uses tax reform debate to seek more corporate revenue and breaks for middle class earners • Immigration re-emerges as key priority • Transportation and education reauthorizations pick up speed • Green jobs investments expand Source: National Journal Member Research, 2012.

17. Education Policy a Democratic Sweep scenario Significant chance a re-elected President Obama elevates education policy agenda Signature Obama initiatives continue: Community College agenda, regulatory expansion, Pell Grant protection HEA Reauthorization chances increase Education Funding Outlook stable with possible moderate increases Student loan and for profit industries will be targeted in Obama Budget and Regulatory initiatives

18. Election’s Impact on Education Policy

19. Election’s Impact on Education Policy