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Net Neutrality Proposals Will Impact State Regulators

For years now, a debate has been raging throughout the nation over how access to the Internet should – or should not – be regulated. Commonly referred to as ‘Net Neutrality’, this debate focuses on Internet traffic, and whether or not Internet service providers (ISPs) should be permitted to prioritize traffic based off where it is coming, and where it is going. Naturally, most website operators are opposed to any rules that would allow an ISP to have control over their traffic, as they fear it may prohibit or hinder access to their domains. ISPs, on the other hand, believe that they should be able to control and prioritize traffic that is carried over their equipment. Earlier this year, we got a sign that this debate may be coming to an end.

On May 15, the Federal Communications Commission (FCC) announced that it is weighing two regulatory proposals relating to Net Neutrality. The first, favored by ISPs, would allow them to create ‘fast’ and ‘slow’ broadband lanes, or otherwise prioritize Internet traffic based off its source and its destination. This route is widely opposed by most Internet domains as it would effectively end ‘Net Neutrality’, or the practice of treating all Internet traffic equally, as it currently exists. Though there are currently no clear rules against prioritizing traffic, it is not considered widespread. Netflix claimed earlier this year that it was being throttled by major ISPs and was forced to pay them directly for its users to have prioritized access to its services.

The other approach, favored by major Internet domains as well as President Obama, would reclassify broadband Internet as a telecommunications service and thus bring it under the same regulatory oversight that telephone service providers fall under. This approach would effectively allow broadband Internet to be regulated as a public utility. Not only would this allow the FCC to preserve Net Neutrality, it would open the door to numerous other federal and state-level regulations that do not apply to broadband providers.

As of right now, states legislators and regulators are at a standstill while they eagerly await a decision from the FCC on how it will act on these rules; under the Communications Act of 1996, the FCC has the authority to preempt state-level restrictions, making them hesitant to take up any proposals that could potentially be thrown out by federal regulators in the coming months. Should the FCC choose to decide in favor of regulating broadband Internet as a telecommunications service, the entire framework in which both state and federal regulators operate would be turned on its head, and states would be forced to react to this new regime.

The earliest the FCC could make a decision would be at their first meeting of 2015, on January 29, though there is currently no indication as to whether they will be prepared to. Before a final proposal can be voted on by the five Commissioners tasked with policymaking, it also must be presented to all of them at least three weeks prior to any meeting, meaning the final proposed rule would need to be circulated by January 8 to be eligible for consideration on the 29th. FCC Chairman Tom Wheeler has personally stated that he would like the agency to take its time and create sustainable rules that can live up to a court challenge, “The big dogs are going to sue regardless of what comes out,”

Elections Bring Power Changes in State Legislative Control

The Republican takeover of the U.S. Senate and the GOP’s retention of many governors’ seats was mirrored on the state legislative level following November’s elections. The results of the elections show that in many legislative chambers considered “tossups” or “battlegrounds” prior to the elections, Republicans were consistently far safer than initially projected.

The Arizona Senate was considered a close race to watch for a Democratic takeover. Despite the concerns, Republicans maintain their control of the upper chamber with a 16-11 seat lead over the Democrats, with just three seats still undecided at the time of reporting. The Arkansas legislature, which up until 2012 had been considered strongly Democratic, saw a major uptick in Republican seats. Their narrow 51-49 lead in the House has been expanded to 64-36. GOP gains in California could derail Democratic Gov. Jerry Brown’s plans for a high-speed rail line, and the GOP took a two-thirds supermajority over the Georgia House. In the Kansas House, where Republicans were predicted to lose seats, the GOP picked up at least two seats.

Prior to Election Day, Republicans controlled 59 of the 98 partisan legislative chambers. According to the current polling data reported by NCSL, the Republicans flipped both chambers in Nevada and West Virginia, the Senate chambers in Colorado and Maine and the House chambers in Minnesota, New Hampshire, and New Mexico. This gives the party a net gain of six chambers for a total of 68. The numbers also signify Republican control in 24 states, where they hold both chambers of the legislature as well as the governor’s office. This number includes Nebraska, which is technically nonpartisan, though in practice Republicans control the chamber by a wide margin, the Washington Post reports.

With the U.S. Congress and President Obama in an ongoing deadlock, state legislatures will play a more crucial role in addressing key policy issues. If history is any indicator, the GOP’s strong showing on Tuesday is likely to portend the introduction of more laws governing taxes, voting and abortion heading into the 2015 legislative sessions.

Direction of State Policy on the Line in Gubernatorial Elections

This year 36 states have scheduled gubernatorial elections to determine who will hold their state’s highest executive office, a significant increase over 2012 when only 11 governors’ races were contested across the nation.

Republicans currently hold a numerical edge with 29 seats to the Democrats 21. This landscape should shift slightly however, with incumbent and retiring Republicans vulnerable in some states where Democrats have fielded strong candidates. When the dust settles next Wednesday, Republicans will still control more governors’ offices but we believe Democrats will have narrowed the gap.

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Hampshire, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, Wisconsin and Wyoming all have scheduled gubernatorial elections this year.

While most of these races are not expected to be competitive, a number are not only extremely close but hold important policymaking implications. Even the looming threat of the governor’s veto power is enough to sway policy towards the center in states where one party does not control a supermajority. Below we’ve outlined some of the closest governors’ races where the direction of state policy in the upcoming years is on the line:

  • In Alaska, incumbent Republican Gov. Sean Parnell is facing an uphill battle against a unique coalition between a former Republican and a Democrat who are running as an Independent union. The outcome remains murky, as Alaska is a heavily Republican state, but Walker has shown a slight edge in some of the most recent polls. A win here would give the opposition coveted veto power over the state’s Republican dominated legislature.
  • Arkansas Democratic Gov. Mike Beebe ineligible to run for office due to term limits, and Republican candidate Asa Hutchinson has been polling ahead of Democratic challenger Mike Ross. A win for the GOP here would give them total control of state government.
  • Colorado’s incumbent Democratic Gov. John Hickenlooper is polling neck-and-neck with Republican challenger Bob Beauprez, in a race that appears to be among the tightest in the nation, in a state that is increasingly leaning more and more to the right after several years of Democratic control.
  • Deep-blue Connecticut may also see its highest executive office go red following Novembers election. Incumbent Democratic Gov. Dannel Malloy is polling almost identically with GOP challenger Tom Foley, who he defeated by a razor-thin margin in 2010. This would be a big win for the GOP in a state where the legislature is dominated by Democrats.
  • Florida’s Republican Gov. Rick Scott is seeking a second term in office and is seen as having one of the most vulnerable seats in the 2014 election. Governor Scott will face former governor and Republican-turned-Democrat Charlie Crist, who served as governor from 2007 to 2011. Crist is currently seen as a narrow frontrunner to retake his old seat, but Scott has pumped $41 million into the race to hold onto his seat which has become one of the most expensive races in the country.
  • Georgia Republican incumbent Gov. Nathan Deal is running for a second term against Democratic state Sen. Jason Carter, grandson of former President Jimmy Carter. Libertarian candidate Andrew Hunt is also on the ballot. The race has been neck and neck so far, with the most recent polls showing Governor Deal narrowly ahead.
  • Illinois Democratic incumbent Gov. Pat Quinn faces an uphill climb in his effort to be reelected. His opponent, businessman Bruce Rauner, has shown a slight lead in the polls as backlash towards some of Quinn’s unfavorable policies. A win for Rauner would give the GOP significant power in the overwhelmingly democratic state.
  • The governor’s race in Kansas has exploded into one of the most hotly contested in the country during this election cycle. Incumbent Republican Gov. Sam Brownback is facing an uphill battle against state House Minority Leader Paul Davis, in a race that has become a referendum on the incumbent governor’s policies that have pushed the state into severe economic decline. This decline has resulted in numerous sitting and former Republican officials endorsing the Democrat.
  • Maine’s incumbent Republican Gov. Paul LePage is seen as one of the most vulnerable gubernatorial incumbents facing reelection. The race features former Democratic Rep. Mike Michaud and Independent candidate Eliot Cutler, who also ran in 2010 and received over 36 percent of votes, narrowly losing to LePage. Independents are largely seen as the deciding factor in the race. LePage has recently taken a commanding lead in the polls, where a win would continue to frustrate the overwhelmingly Democratic state legislature.
  • Massachusetts Democratic Gov. Deval Patrick is eligible to run for reelection, but chose not to seek a third term. The race pits Democratic Attorney General Martha Coakley against Republican venture capitalist Charles Baker. Recent polls have shown Baker to have a slight edge against Coakley in the race. While traditionally one of the most Democratic states, Massachusetts has a history of electing Republican governors.
  • Michigan Republican incumbent Gov. Rick Snyder is running for reelection to a second term this November against former Democratic U.S. Rep. Mark Schauer. Governor Snyder has lost a lot of momentum in the state through passing controversial initiatives such as “right-to-work” and his tax reform plan of 2011. A win for Schauer would be a major victory for Democrats looking to break up the Republican stronghold in the state.
  • Wisconsin Republican incumbent Gov. Scott Walker is running for reelection to a second term against Democrat Mary Burke. Despite a statewide vote overturning legislation that Walker signed limiting the power of public-sector unions, he has continued to support right-to-work measures during his campaign. Recent polls have shown Walker holding a narrow lead within the margin of error.

Nevada Special Session Paves Way for Gigafactory

Nevada is one of the few states whose legislature typically meets once every two years, in contrast to the vast majority, which hold a legislative session once per year. While they are generally not scheduled to meet in even-numbered years, earlier in September Nevada legislators were suddenly called to work in a special session by Republican Gov. Brian Sandoval. The issue? To pass a massive tax incentive deal for Tesla Motors as a reward for choosing the state at the site of a massive new lithium-ion battery producing gigafactory.

After months of speculation and jockeying by southwestern states to curry favor and self-promote, it was announced on September 3 that the state would be the site of Tesla Motors new gigafactory, a massive $5 billion manufacturing facility that the all-electric motor vehicle manufacturer will use to create batteries for its popular and industry-leading electric-powered motor vehicles. While the automaker had previously hinted that they would like to have 10 percent, or $500,000 of the bill to construct the facility footed by the state, Nevada went above and beyond to cater to Tesla during the special session, pledging an estimated $1.25 billion in numerous tax incentives and breaks in order to win the nod of approval. As part of the deal, the state has reportedly agreed to waive property taxes on the factory through 2024 and all sales taxes levied on the factory through 2034, provide tax credits for each full time job created in the state and offer transferrable tax credits on further investment in the state by the Manufacturer. The fact that Nevada does not currently levy a corporate sales tax also undoubtedly played a role in the company’s decision making process.

The project itself has been described as one of the biggest economic development and manufacturing wins for an area in U.S. history and the largest project in the state since the Hoover Dam. The factory is expected to create up to 6,500 jobs in the state and at its peak supply batteries for 500,000 electric motor vehicles per year by 2020. “This factory is very important for the future of Tesla, because without it we can’t do the mass market car,” said Tesla Motors CEO Elon Musk.

The last important detail of the package included an agreement to lift the ban on direct manufacturer-consumer motor vehicle sales in Nevada, an issue which has been a thorn in Tesla’s side for years. Many states currently require vehicles to be sold through a franchised dealer rather than directly by the manufacturer; effectively outlawing Tesla from doing business in many states. Tesla has been intent on bucking that trend and selling vehicles directly to interested consumers and has seen legislative success in many states, such as New Hampshire which lifted the ban in 2013. While this legislative victory paves the way to more modern, mainstream success in the American motor vehicle market, the company still has many policy-driven hurdles to overcome before they become commonplace on U.S. roads.

Nations Capital Looking to Become 51st State

Residents of the District of Columbia have long bemoaned their lack of representation in the U.S. Congress. Its nearly 650 thousand citizens – more than the states of Vermont and Wyoming – are not afforded the simple luxury of having a say in government affairs and laws they do pass must first go through the grueling process of congressional approval, which like most congressional affairs is never a speedy process. One does not need to look far to realize that DC citizens are disgruntled about this state of affairs – their license plates are adorned with the phrase ‘taxation without representation’ referring to the fact that even though they pay federal income taxes, they have not yet been granted voting representation in Congress.

Residents, however, are hoping that could all change shortly as a result of S. 132, The New Columbia Admission Act. For the first time in over 20 years, congress is considering a bill that would finally grant statehood to the district under the moniker of ‘New Columbia’, which would encompass all of the non-federally owned land that currently comprises the district. Under the bill the federal government would maintain ownership of most buildings relating to the functioning of the federal government and all military lands. These areas would continue to be referred to as the District of Columbia. It would also prohibit the new state from imposing any taxes on federal property.

On Tuesday, residents, activists, and D.C. Delegate Eleanor Norton, the District’s sole non-voting member of the House, packed the room for a hearing in the Senate Homeland Security and Government Affairs Committee. Among those speaking included Delegate Norton and District Mayor Vincent Gray. However, The Washington Post reports that only two senators – the chair and vice-chair of the committee – actually attended the hearing, one of whom left shortly after commencement, calling the exercise a waste of time.

Granting statehood and thus congressional representation to the district would undoubtedly tip the balance of Congress, as the district is considered to be overwhelmingly Democratic. Should the bill even pass the Senate, for which prospects are dim, it would be dead on arrival in the Republican leaning House. Because of its heavily Democratic skew, granting representation would essentially hand two senators and one representative to that party – a nonstarter for House and Senate Republicans. While it is unlikely that the district will attain representation in this congressional cycle, supporters are hopeful that this hearing is symbolic of good things to come.