Here are the facts: Barack Obama captured more than 50% of the votes and crushed Mitt Romney in the electoral college by 332 to 206 seats.
Democrats, predicted to lose seats in the Senate, actually picked up two and headed into the 113th Congress with a 55-45 plurality (because two Independents plan to caucus with the Democrats). Republicans lost some seats in the House but retain a solid majority of 234 to 200.
The Nov. 6 general elections are over, thank goodness. And now we’re entering an era of fiscal cliffs and federal belt tightening. But if you think the country’s deepening debt is all you have to concern yourself with, think again.
From energy to tobacco to health care and swipe-fee reform, legislation should be on your mind. Will the FDA ban menthol cigarettes? Will car-mileage standards and renewable-fuel mandates butt heads? Will c-store operators be able to put into place a health-care strategy that doesn’t devastate them in time to meet the 2014 starting gun? Will the major credit- and debit-card companies and major banks continue to draw billions of dollars in annual fees from the c-store channel?
In this special CSP feature, we look at the top issues confronting you in 2013.
Imports Declining, Domestic Production Climbing
OPEC. Foreign oil. Middle East. Mention these terms and the sense of U.S. dependence on overseas crude oil boils with vigor.
Add the three- and four-hour gas lines in New York and New Jersey this past fall in the aftermath of Hurricane Sandy, and one fears an energy scarcity similar to the oil crises of the 1970s and early ’80s.
Good news: Oil experts forecast a rise in domestic product and greater cooperation with Canada. Fueling this optimism is the abundance of “tight oil” and gas liquids from shale production that could drive an additional 4.4 million barrels per day (bbl/d) and lift us above our peak of 11 million bbl/d in the early 1970s.
And there has been an upside to our economic drag. Americans are driving less, or at least not more. While annual forecasts by the federal Energy Information Administration (EIA) typically call for consumption increases of 2% to 4%, today consumption remains flat to slightly up.
In August, EIA reported that U.S. gasoline consumption in the first quarter of 2012 averaged 8.5 million bbl/d—down 124,000 bbl/d compared with the same period in 2011, and a whopping 800,000 bbl/d below our country’s peak in 2007.
As a result, net oil imports are declining. And though our population continues to climb, improvements in fuel-efficient vehicles and higher Corporate Average Fuel Economy (CAFÉ) standards are prompting some experts to believe that U.S. demand of foreign oil has peaked.
“I’m really upbeat about 2013,” says Tom Kloza, chief oil analyst for OPIS, Wall, N.J. “Most of the evidence suggests prices being volatile but modest. And the refining industry in North America is incredibly [stronger] than in any of the other continents.”
Does this mean a shift toward greater energy independence? The answer depends greatly on new technologies, global warming and bridging the often stubborn divide between energy production and environmentalism.
The United States imports nearly 60% of its oil, compared to 28% 30 years ago. Some experts see investment in natural gas as a more expedient solution than vast investments in alternative energy sources such as solar, or electric vehicles. “Liquid will be our future for at least the next 20 years,” says Jeff Lenard, NACS’ vice president of industry advocacy. “We also happen to be well equipped [infrastructure-wise] to deliver it over the next 20 years.”
Fueling hope in natural gas as a viable resource are several factors. One is the environmentally controversial Keystone XL Pipeline, which President Obama rejected in 2011 over widespread opposition from oil and union interests.
And the other great hope is Canada. Just a few months ago, EIA completed a report outlining Canada as not only one of the world’s five largest energy producers but also the principal source of U.S. energy imports.
“Canada is a net exporter of most energy commodities and is an especially significant producer of conventional and unconventional oil, natural gas and hydroelectricity,” the report said. “It stands out as the largest foreign supplier of energy to the United States.”
On the regulation front, look for some Congressional attention on reconciling two federal measures aimed at reducing emissions and consumption, but which as constructed could come into conflict.
NACS is seeking a resolution that harmonizes the Renewable Fuels Standard and the (CAFE) standards. The Obama administration in August finalized new standards that will increase fuel economy to the equivalent of 54.5 mpg for cars and light-duty trucks by 2025, nearly doubling the fuel efficiency of new vehicles.Says NACS’ Lenard: “You can’t have the RFS and CAFÉ system together as they are presented. They just can’t happen.”
Tough Medicine
“Obamacare is the law of the land.”
This proclamation came from an unlikely source: House Speaker John Boehner (R-Ohio), just two days after President Obama was re-elected.
Yes, Alabama, Wyoming, Montana and Missouri all passed measures to block the implementation of the Affordable Care Act (ACA). However, according to Lyle Beckwith, such amendments are symbolic at best, given the Supreme Court’s decision to uphold the health-care mandate.
“There will be some litigation, but these statutes will be viewed as pre-empted by the ACA,” says Beckwith, NACS’ senior vice president of government relations. And with the Jan. 1, 2014, deadline less than a year away, retailers need to start sorting through their options.
“It’s extremely important to get ahead and lead this dialogue,” says Jeff Kirke, vice president of employee benefits for Holmes Murphy, an insurance brokerage firm based in Des Moines, Iowa, that provides industry-specific analysis of health-care options for c-store retailers. “It’s a pretty daunting and arduous process retailers are going to have to go through.”
First, retailers must determine whether or not they truly have more than 50 full-time equivalents. Retailers who employ more than 50 full-time employees may look to cut down hours.
“I think this will drive many of those sellers to carefully re-evaluate their hourly workforce and to ensure that—to the extent that they can—hourly workers will not work more than 30 hours per week (so that they will be part-time and not subject to the mandate requirements),” Beckwith says.
However, this move is not without risk: Under the mandate, employers evaluate their penalty exposure retrospectively, looking over the prior year and determining whether employees were full-time from month to month. If an employee was full-time one month, he or she was required to get an offer of coverage for that month—and retailers will pay a huge price if they aren’t in compliance.
“If even one full-time employee did not have access to qualifying coverage, then the penalty is $167 per month times the overall number of full-time employees the employer employed during that month,” Beckwith says. “This is a very onerous penalty, and one concern has been that there may be isolated instances when a normally part-time employee works more than the 30 hours per week.”
To Pay or Not to Pay
For retailers with more than 50 full-time employees, there is a mathematical question to calculate: to pay a penalty or not?
“Say you have 100 full-time employees,” Kirke says. “Under the law, you get 30 for free. So you only pay the $2,000 penalty for the 70.”
Sounds too good to be true? Yep. “What you have to consider is [penalties] are taxed dollars,” Kirke says. “The premium you pay on your employee benefits is a writeoff.”
While it’s more time-consuming than calculating the cost of paying the penalty, it could be worthwhile to map out the actual cost of offering a minimum essential benefit (a bronze plan).
“Every employee is not going to enroll in the plan,” Kirke says. “They could potentially go to the exchange, based on their family income, and have a subsidy there. We believe we can get a lot of people off your program and onto the exchange.”
The key is determining whether or not it’s financially beneficial for a retailer to offer a program that meets the minimum benefits requirement, encouraging lower-income employees to seek a better deal through the exchange while still making coverage available to higher-paid employees who would not receive such subsidies on the exchange.
“We use the $2,000 penalty as a baseline and run an analysis to show what it would look like to stay in the game,” Kirke says. “Rather than paying the government $2,000 after tax penalties, let’s use that as a contribution to the employees, where it can be written off.”
Whether a retailer chooses to pay the penalty or “stay in the game,” it’s time to get those plans in motion. The ACA will greatly affect a retailer’s bottom line—but a well-prepared plan of action could soften the blow.
How the PAC Money Rolls Out
Pragmatism over zealotry, judiciousness over ideology: A look at how our national trade associations seek to influence federal policy suggests a conservative bent but not a full tilt toward the right.
CSP looked into how NACS, SIGMA and PMAA invested their political action committee (PAC) money—which congressional and Senate races they wagered in, who received the largest sums and the possible reasons why.
For an industry that is reflexively conservative, the PAC spending may at first seem surprising. Why would SIGMA and NACS each give $10,000 to U.S. Sen. Kirsten Gillibrand (D-N.Y.), or PMAA kick in $7,500 to Colorado Sen. Michael Bennet?
The answer to these questions underscores a consistent strategy. “A few years ago, we really modified how we talk to Congress,” says Jeff Lenard, NACS vice president of industry advocacy. “We agreed to focus on the issues first. Because of that, when you look at how most government relations is done, usually you say, ‘No, no, no’ in stopping stuff.
“We found you get a lot more accomplished if you say, ‘How can we work with you?’ ”
PMAA president Dan Gilligan echoes that approach. “In terms of PAC support, you can see that we are very bipartisan and we consciously work at being bipartisan,” he says. “In the lobbying business, a senator who was your opponent in the morning might be your strongest supporter on another measure in the afternoon. We look to support candidates, both Republican and Democrat, who are leaders among their peers and have good relationships with marketers back home.”
That said, Republicans do receive the lion’s share, including key playmakers in both the House and Senate such as House Majority Leader Eric Cantor (R-Va.), Rep. Joe Barton (R-Texas), Rep. Tom Cole (R-Okla.) and Sen. Rick Berg (R-N.D.).
“If you want to make a friend, you need to be a friend,” says a veteran political insider familiar with the three trade associations. “What this is all about is to identify your industry group as part of their (congressional members’) constituency so that you ensure a seat at the table.”
Beltway sources talked to CSP on condition of anonymity because of the sensitivity of lobbying. They said a look at the PAC distributions of NACS, SIGMA and PMAA show a preference toward certain House and Senate committee members who wield great influence on matters most important to these industries: specifically, the House Energy and Commerce, Financial Services, and Ways & Means. On the Senate side, greater consideration is given to Energy and Natural Resources, Environment and Public Works, and Finance.
Taxes and Rules
Although retailers in Missouri had reason to celebrate— avoiding the 73-cent cigarette tax increase in Proposition B by less than 100 votes—President Obama’s re-election and a Democratic majority in the Senate has many U.S. retailers concerned about implications for their tobacco business.
“Elections have somewhat higher relevance for tobacco than many other consumer sectors,” wrote Deutsche Bank research analyst Andrew Kieley in a Nov. 5 report. Like many, Kieley predicted Republican victories in the Presidential and some Senate races would benefit tobacco retailers. But that didn’t happen.
So what now? “A Democratic win may be slightly negative overall for the tobacco sector due to the likelihood of increased tobacco taxes and regulation,” says Bonnie Herzog, managing director of beverage, tobacco and consumer research for Wells Fargo Securities LLC, New York. “Tobacco could be an area of focus for increased tax revenue, particularly to pay for national health care.”
History certainly suggests the Obama administration could look to cigarette taxes to generate revenue: In 2009, federal excise taxes on cigarettes were increased from 39 cents per pack to $1.01 per pack to expand health-care coverage for children, a move that won some bipartisan support.
However, Herzog doesn’t fear a drastic bump, saying “the chance for another substantial federal excise tax increase is minimal, given the large increase in 2009.”
Taxes, of course, are just one part of the tobacco equation. “We’re expecting under the Obama administration, the FDA will publish deeming regulations that would apply Chapter 9 of the Tobacco Control Act to all currently unregulated tobacco products, which includes cigars, electronic cigarettes, and lot of the new products coming down the pike,” says Bill Godshall, executive director of Smokefree Pennsylvania.
Actions prior to the election suggest the FDA was moving forward with these regulations, regardless of who would occupy the White House in 2013.
“About a month before the election, I heard that the FDA had already sent the deeming regulation to the Office of Management and Budgets to get it to sign off on,” says Godshall. “There was no way they were going to propose the regulation before the election, but ... it could come any day, week or month now.”
Fending Off a Swipe
Protect and expand: That’s NACS’ strategy as it seeks to preserve the critical victory it and merchant groups scored in 2011 when the Durbin Amendment on debit-card swipe fee reform passed as part of the Dodd-Frank law.
But NACS enters 2013 confronting immediate assaults on this laborious legislative victory. As CSP went to press, a federal district court was to decide whether the Federal Reserve overstepped by conceding to the banks and setting debit swipe fees at 21 cents, after initially reducing the average 42 cents per transaction to 12 cents. In addition to the 21 cents, the Fed tacked on 0.05% of a transaction and another cent for fraud prevention.
“We want to ensure that debit-card reform remains,” says Jeff Lenard, NACS vice president of industry advocacy. “We don’t have any hint that it would not stay, but we do want to make certain that debit reform truly becomes debit reform. And the final rule (of the Fed) was very different from the proposed rule.”
And retail groups are fighting a proposed $7.25-billion class-action antitrust
settlement against Visa, MasterCard and the major banks. Merchant groups, including NACS and SIGMA, fear that the settlement fails to address structural cracks that give the major credit-card companies virtual oligopolistic power over plastic.
While merchant groups line up to protect gains achieved after a 10-year battle on debit fees, NACS is also taking the offensive, aiming to launch a similar—and longer-shot—crusade for credit-card reform. “Seventy percent of Congress is entering into a new term,” Lenard says, referring to members of the House and Senate elected either for the first time or to another term. “That gives us a good opportunity to start anew. … Chief among [our tasks is] how you reform credit-card fees.
“The issues will be reminiscent to the trench warfare on debit-card swipe fees—to achieve transparency, drive greater competition against the major credit-card companies and banks, and drive down transaction fees.”
“We understand competition. We compete for a penny [of gasoline margin] on the street,” Lenard says. “So it’s frustrating to see an industry that is permitted to function without competition and get away with it.”
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