Energy and Commerce’s Promising Reconciliation Bill

By James Erwin

Over the weekend, the House Energy and Commerce Committee released the text of its portion of the reconciliation bill the House hopes to pass by Memorial Day. On Spectrum and AI policy, the bill takes great strides for innovation and growth, even if it faces a long road to passage.

Under the leadership of Chairman Brett Guthrie (R-Ky.), the committee was charged by the budget resolution with finding $880 billion in savings and revenue, mostly from reforms to Medicaid and a combination of mining fees and spectrum auctions. Thanks to the chairman’s leadership, the bill would finally reopen spectrum auctions after nearly four years, something regular readers of Digital Liberty will know is a source of much rejoicing for us.

But the FCC would not only be given the authority to hold auctions again – it would be tasked, along with NTIA, with finding 600 MHz of spectrum for a pipeline for future auctions. This can come from spectrum currently under exclusive government use, non-government use, or shared use. The quantity is sufficient to sustain auctions over the next few years on its own, but the bill also imposes a strict timeline to ensure this opportunity does not go to waste or languish in development hell – at least 200 MHz must be auctioned within three years of enactment and the remainder within six years.

Spectrum auctions have generated over $233 billion since 1994 while wireless investment has added $260 billion to GDP. Of this, $118 billion has come in since just 2018 – demand is growing. In a Wall Street Journal op-ed over the weekend, Chairman Guthrie revealed that the Congressional Budget Office has projected these auctions will generate $88 billion in revenue. This figure should factor in the 110 percent relocation costs the FCC is required to cover for incumbents to vacate the bands they are using, which comes out of the auction proceeds. But even if these costs exceed current estimates, CBO has a bizarre practice of scoring spectrum auctions at 50 percent their expected revenue on the off chance that the auction never takes place.

Absurd though this may seem given the black-letter law mandated auctions within six years and the very public willingness by FCC Chairman Brendan Carr to get it done, it nonetheless provides a ballpark for net revenue after relocation costs. CBO likely projected over $170 billion in revenue before cutting it in half, and demand is likely high enough to bring in more revenue than even that figure.

Beyond the revenue, which helps Congress preserve the Trump tax cuts that spurred investment and job creation between 2018 and 2019, spectrum auctions move resources away from the government and into the private sector through exclusive licenses. Giving licensees skin in the game akin to private property will encourage innovation well beyond what government can do with the spectrum. It could generate close to $400 billion in consumer benefits.

The EnC title also includes an unexpected treat: federal preemption of state and local AI regulation. As we have argued to the Trump administration and to the public, this policy is necessary ensure innovation and human flourishing. Thousands of proposals have been introduced in state legislatures to regulate or discourage the development of AI; even if they are not totally egregious, it is impossible for deployers to comply with a patchwork of 50 state laws. AI is plainly interstate commerce, and Congress should preempt its regulation like they did internet taxes through the Internet Tax Freedom Act. Including this in a reconciliation bill, along with a $500 million appropriation to modernize government systems with AI, is a welcome surprise.

Which brings us to the rocky road ahead: this is all happening through budget reconciliation. Budget reconciliation is one of the few processes by which Congress can bypass the Senate filibuster to pass legislation. The Senate’s standing rules usually allow any Senator to speak as long as they want to without time limits, and debate on any measure usually continues indefinitely until a supermajority of 60 Senators votes to “invoke cloture” – that is, end debate and proceed to a final vote. Since winning a 60-vote majority in the Senate is rare for either party, most measures must have bipartisan support to pass the Senate.

Under the Congressional Budget Act of 1974, the Senate and House can pass a budget resolution by simple majority. Once a budget is established, they can pass one “reconciliation bill” each fiscal year, which “reconciles” future spending and revenue to the budget resolution. This too passes the Senate by simple majority so that a minority of 41 Senators cannot obstruct basic fiscal policy.

The effect of all of this is that most of a party’s agenda must by passed by party-line budget votes if there is no support from across the aisle. And these budget items can only affect spending and revenue, so policy changes cannot ride on reconciliation votes unless there is a clear budgetary impact. Spectrum auctions directly raise revenue, so they will have no problem clearing this bar and have been authorized by reconciliation in the past. AI preemption’s future is less clear.

It is possible that the Senate parliamentarian, who makes rulings on what can and cannot be included in reconciliation bills, will rule against the AI preemption. Not because it is bad policy, mind you, but because it is not technically a budget item. We shall have to wait and see how this turns out, but getting all of the House Republicans on record supporting the policy is still valuable as a starting point. Hopefully, we can continue building the case for preemption in the future.

While most of the debate on this bill will likely center around Medicaid reforms, the telecommunications and tech portions deserve attention. Spectrum auctions and AI preemption are both great policies that should carry in this bill or in the future if the parliamentarian disagrees. Either way, the House Committee has done great work to draft pro-innovation policy.