Springing Into Action
By David Floreen
Our long, snowy winter is a dis- tant memory, flowers are out and both the state Legislature and Congress are taking up a number of bills. In short, everything is springing into action – well, sort of. In our last column in January, the Massachusetts Legislature had just convened for its 2005-2006 session, no committee assignments had been made and Gov. Mitt Romney had not filed his budget for FY 2006.
Just like our long winter, the Legislature is emerging from a major overhaul in its committee structure that delayed the assignment of bills and beginning of public hearings for several weeks. Once Salvatore DiMasi (D-Boston) was elected as the new speaker of the House and Robert Travaglini (D-Boston) was re-elected as president of the Senate, the two leaders undertook the most sweeping restructuring of the legislative committee structure since the late 1960s.
Most standing committees were realigned, combined or split up to reflect new issues, technologies or demands on the Legislature. Only five of the more than 20 standing committees remained essentially the same: Judiciary, Public Safety, Public Service, Revenue and Transportation. One major change was the merging of the former Committee on Banks and Banking and Committee on Insurance into the Committee on Financial Services, with broad jurisdiction of all banking, insurance and securities issues, including several matters relating to health care – one of the biggest issues on Beacon Hill this year.
This sweeping realignment of the committees necessitated a top-to-bottom review of all 6,000 bills filed to ensure that they were now assigned to the proper committees. This process took several weeks and it was not until early May that all bills were finally assigned to the proper committees – about 10 weeks later than normal. Even today, some bills are being reassigned upon further review. This delay, coupled with the fact that many committee chairs were new, and staffs and offices were moved, postponed the onset of most committee hearings, including the Financial Services Committee, until mid-May or later. In fact, there is some speculation that many legislative hearings will take place in the fall between early September and early November, as the reporting deadline for all bills is mid-March 2006.
Not only has the committee structure been revamped, but the composition of most committees is vastly different than in 2004. The Financial Services Committee is a good example. Of the 17 members (six from the Senate, 11 from the House), only three had served on what was the old Banks and Banking Committee, while six had served at some point in time on the Insurance Committee.
Sen. Andrea F. Nuciforo Jr. (D-Pittsfield), former Senate chair of the Banks and Banking Committee, is the new Senate chair of the Financial Services Committee while Rep. Ronald Mariano (D-Quincy) is the new House chair. Rep. Mariano had been the House chair of the former Insurance Committee. Both chairs bring at least four years of experience as chairs of their respective committees – seasoning that will be necessary to lead this powerful committee through many major issues this session. (See the cover story in this issue.)
This revamping and reshuffling presents both challenges and opportunities for member banks. It means that many committee members and their staffs are relatively unfamiliar with the substance and nuances of the many issues before the committee, and thus additional education outreach is important. Thus far, in preliminary briefing sessions and small meetings, the Association has been impressed with the caliber and interest in the issues expressed by many new members.
So, what are the emerging issues on Beacon Hill for 2005? Health care reform tops everybody’s list of must-do in 2005. Both Gov. Romney and Senate President Travaglini have filed major health care reform packages and have indicated that they are working together along with legislators to forge a program that will address many needs without imposing a mandate on employers to provide health insurance. Timing? Probably sometime in late fall, as it takes time to develop a consensus on such a complex topic that affects so many residents and voters.
The Legislature dodged a potentially expensive and controversial bullet in February as the state Supreme Judicial Court ruled that the current education funding plan did not violate the state constitution, even though the court acknowledged that some real disparity exists.
Key Issues Auto and homeowner insurance reform tops the agenda of the Financial Services Committee. Other key issues will be expanding CRA to mortgage companies, further restrictions on bank merger/acquisition practices, and efforts by credit unions to accept public deposits. As previously reported, the Association’s agenda focuses on a series of bills designed to streamline regulatory impediments to the conduct of banking business. They include electronic banking reform, strengthening the dual banking system, preserving charter choice/conversion options, prohibiting the unauthorized use of a bank’s name, stiffening penalties for bank robbers and check fraud, and several trust initiatives including early adoption of the Principal and Income Act.
By late May, both the House and Senate will have approved their respective versions of a state budget for FY 2006 that takes effect on July 1. The tight fiscal situation shows no signs of abating in the foreseeable future with limited revenue growth, no significant appetite by legislators to raise taxes, and tremendous demands to expand spending on many services, from local and higher education to local aid, health care, the environment and pensions.
Last January, as part of his budget message, Gov. Romney filed a third major tax package designed to close a series of alleged “corporate tax loopholes.” Many of the provisions in the original package, H 21, generated a firestorm of opposition from many segments of the business community, particularly language that would have granted the commissioner of revenue sweeping authority to reallocate revenue if he believed that corporations were attempting to avoid subjecting Massachusetts-generated income to taxation. On Good Friday, the governor quietly dropped these controversial provisions, but retained language extending the sales tax to include software purchased electronically and revisions to the bank match program. At this writing, the Legislature is still evaluating this new package which, if enacted, could generate about $85 million annually in additional state revenue.
Unlike Beacon Hill, the Republican-dominated Congress got off to a much faster start this year, particularly with respect to banking issues. Two major priorities for banking became law early in 2005: bankruptcy reform and class action reform. These issues had struggled in the past several sessions, but the larger Republican majorities helped drive swift action early in the session. Whether the momentum can continue is open to question, as there is tremendous partisan bickering behind the scenes over Republican efforts to change the long-standing filibuster rules in the Senate. Democrats have refused to allow votes on about a dozen conservative judicial nominees recommended by President Bush. Republicans want to eliminate the need to have 60 votes to stop debate, the so-called cloture motion. This is a major political power struggle that could create gridlock again in Congress later this session.
Meanwhile, what other banking-related issues are emerging? Identity theft, file breaches and related topics have captivated Congress, and this is not a partisan issue. Members and the public are concerned about the onslaught of reports about personal financial information breaches suffered by retailers, colleges and third-party data providers. It’s unclear at this time just when and in what form federal legislation will emerge, but this could be the next financial-services related bill to move this session.
Reform of the GSEs (government-sponsored enterprises) remains a top financial services committee priority, and OCC preemption, real estate brokerage, deposit insurance reform and credit union fairness may advance during 2005.
Finally, the regulatory agencies continue to move ahead with a number of initiatives. The release of new HMDA data will generate further scrutiny of bank lending practices. The Federal Trade Commission and federal banking agencies still must finalize language on a few remaining portions of the FACT Act. The Securities and Exchange Commission has again postponed until September the release of final regulations to implement the bank broker-dealer provisions that will impact bank trust departments and those banks with third-party relationships that assist in the sale of securities and mutual funds. Banking regulatory agencies are not expected to advance revisions to the RESPA requirements or address regulatory burden relief in the immediate future. Other potential regulatory issues include expanding the small bank CRA test, and expanded use of the FTC Unfair and Deceptive Acts and Practices Rule.
2005 is a very busy year for the banking community in both Boston and Washington. Banking involvement in the political process will be critical.
David Floreen is senior vice president at the MBA. He can be reached at firstname.lastname@example.org