Ryan Donovan

From Ryan Donovan:

Several months ago, a video of a man actively pondering the meaning of a double rainbow in Yosemite National Park became an Internet sensation.  “Double rainbow!  What does it mean?”  No one who saw that video will forget it anytime soon, and I couldn’t help but think about that video last week when, in the aftermath of Election Day, I was bombarded with the question, “What does a divided Congress mean for credit unions?”

The short answer is “not much.”  Here’s why:

1. Congress was already divided.  While the next Congress will be indisputably divided, a strong argument can be made that the current Congress (now in lame-duck form) is already divided, despite the fact that Democrats hold majorities in both chambers.  In an environment where 60 votes are necessary to pass legislation in the United States Senate, the Republican minority in the Senate has wielded significant power, tempering the Democratic-controlled House of Representatives.  In January, Republicans will control the House of Representatives and Democrats will have a majority (note the word choice) in the United States Senate.  Still, it will take 60 votes to pass anything in the Senate, and the group that can put 60 votes together on legislation will control the Senate.  A divided Congress returns to Washington; it is simply divided in a different way.

2. The legislative outlook is unchanged despite the election.  For credit unions, the legislative outlook in the next Congress is the same today as it was before the election.  Housing finance reform and the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act will be the top issues before the Financial Services Committee and the Senate Banking Committee.  Capital reform will be among the legislative initiatives credit unions pursue in the new Congress.  The outcome is dependent on the proponents putting together the votes to enact legislation.  And in today’s political environment getting anything done in the new Congress will require putting together 218+ votes in the House (including the Republican leadership) and assembling a coalition of 60 votes in the Senate.  It’s a high hurdle no matter who is in charge; and in a politically charged presidential cycle, it becomes even more difficult.

3. Credit unions have balanced support in Congress.  Credit unions have earned balanced support from Members of Congress on both sides of the aisle.  While we certainly have Democrats and Republicans in our midst, the credit union system is not Democratic leaning, like labor unions; and it is not Republican leaning, like the Chambers of Commerce.  When a wave, like the one we saw last week, hits our ship, it is our balance that keeps us from floundering.  While we are not aligned with either party, we do have a very vested interest in seeing credit union friendly candidates elected to office.  So, we were rightfully disappointed to see one of our champions lose reelection last week.  This particular loss cannot be taken lightly, but it is also not the end of the world.  Credit unions are fortunate to have many friends in Congress, including a number who will be sworn in for their first term in January.  In most cases, these candidates won election thanks to help from the credit unions in their district, including several credit unions that went to their members to encourage them to vote.  While we did not win each race in which credit unions actively participated, in every instance, the credit union effort helped to turn out the vote for the credit union friendly candidate.  We should embrace credit union members being politically active in supporting our issues because no one has a more vested interest in a credit union-friendly Congress than credit union members themselves. 

To credit unions, it should not necessarily matter whether Democrats control Congress, Republicans control Congress or if there is a divided Congress.  What matters is that there are plenty of credit union supporters in Congress – and plenty of voters ready to elect credit union friendly candidates.  Last week’s electoral wave did not crush the credit union vessel by any means, but over the next two years it is our responsibility to work to solidify and expand the base of support for credit unions in Congress.

Ryan Donovan is the Vice President of  Legislative Affairs at the Credit Union National Association.

Since we won’t have the late, great Tim Russert to guide us in reading the tea leaves on Election Night, here are three things to watch for as you try to guess whether donkeys or elephants will run the halls of Congress next year.

1. Whither goes New York and Pennsylvania? Four upstate New York districts (the 19th 20th, 23rd and 24th) and three Eastern Pennsylvania districts (the 8th, 10th and 11th) each feature Democratic incumbents in tight toss-up races.  GOP sweeps in these districts (especially in New York, where the Democratic Gubernatorial and Senatorial candidates should win easily) will give an early indication that it could be a long night for Democrats.

2. How closely do exit polls and turnout reports align with early balloting results? Recent reports have indicated a surge of early voting in key Democratic districts across the country, which seems contrary to the conventional wisdom of an “enthusiasm gap” between Republicans and Democrats.  If this late surge in blue precincts bears out on Election Day, could it help Democrats hold in swing districts?

3. Will the West Coast just keep us up late, or into the next day(s)? If control of the House and Senate is still up for grabs as polls on the West Coast close, it may be days before we know who controls each chamber.  Virtually every scenario for GOP takeover of the Senate includes must-wins in California (Fiorina over Boxer) and Washington State (Rossi over Murray). And there are six tight House races (CA-3, CA-11, CA-20, OR-5, WA-2, WA-9) in California, Oregon and Washington as well. The kicker: Oregon and Washington vote almost entirely by mail, and a ballot mailed and postmarked by Election Day must be counted.  So if any of these races are close…it could be days before we have results.

What are this year’s Midterm Elections about? Well, it depends on whom you ask.

Ask Republican Congressional candidate John Doe, and the answer will be something like this:

“I’m running against Congresswoman Mary Smith, who has been lockstep with President Obama, Nancy Pelosi and Congressional Democrats.  In the middle of a recession and rising unemployment, they are only making matters worse by increasing government spending, raising taxes, and expanding government control of the economy.  Vote Republican to fire Mary Smith and Nancy Pelosi and send a message to Obama.”

If you ask his opponent, Democratic incumbent Rep. Mary Smith, she might answer:

“The election is about helping the people here in {YOUR STATE} who are struggling with unemployment, rising health care costs and a shaky economy.  That’s why I fought for extended unemployment benefits, health insurance reform, and federal funds to create jobs here in {YOUR TOWN}.  We can go backwards by electing John Doe and the Republicans who got us into this mess, or we can keep moving forward. By the way, did I mention that John Doe is a right-wing extremist Tea Partier who wants to take away your Social Security?”

Okay, so these are exaggerations, but the point is this: elections are always about choices, and he who frames the choice to his advantage often wins.

Republicans will win big in every competitive district where the election is “nationalized.”  Even Democrats agree the economy, which polls consistently rate as voters’ number one concern, is in the pits.  If the choice is between a nameless Democratic incumbent who is a front for the national Democratic Party (Obama, Pelosi, etc.), and an alternative, then independent voters will default to the (Republican) alternative.

Unless…Democrats can localize the race and frame it as a choice between a Congressman fighting for the local community and an extremist who cares more about partisan name calling/is corrupt/is too extreme/fill in the blank.  Some Democrats in conservative districts may also be able to differentiate themselves from the national Democratic party by pointing to key votes against Obama initiatives such as health care reform and cap-and-trade (both of which passed despite opposition from dozens of conservative Democrats).

Campaigns matter: the candidate that wins in many swing districts will be the one with the campaign best able to frame the election choice according to their “worldview.”  Communicating that message effectively takes financial resources, a smart campaign team, a well-crafted message, and the discipline to stick with it.  Democratic campaigns that run smart campaigns may well be able to withstand a coming Republican wave; conversely, well-organized Republican challengers may be able to capitalize on a pro-Republican (or at least anti-Democratic) national environment.

How this choice is framed, district-by-district, will ultimately determine who controls the House and Senate come January, 2011.

June has been consumed by the fight over debit interchange, but another key credit union priority: raising the statutory cap on member business loans, may soon be elevated as well.  They are two different issues, but do have something in common.  The credit union grassroots outpouring that has accompanied the interchange battle is also expected to have residual benefit in convincing Congress to enact an MBL bill.

The key developments that occurred when Credit Union National Association CEO Dan Mica testified on that issue in May before the House Financial Services Committee have added to the MBL issue’s momentum.  Chairman Barney Frank (D-Mass.) said then that he would hold a committee vote on MBLs relatively soon.  And another witness, Treasury counselor Gene Sperling, stated publicly the parameters (stemming from discussions with CUNA) under which the Administration would support raising the cap

Rep. Frank’s desire to move quickly to MBLs after dealing with financial reform is welcome and makes sense from a policy and economic standpoint.  The May U.S. employment figures were disappointing, generating talk of a jobless recovery.  Meanwhile the Senate is contemplating a jobs bill that could become a vehicle for MBLs in that body.  Why?  As CUNA, the leagues and CUs have emphasized repeatedly, raising the cap is a job-creating measure, generating loans that would lead to an estimated 108,000 jobs in just the first year.

Nor would the MBL plan come with any government cost. That sets it apart from the Administration’s plan to channel $30 billion leftover from the Troubled Asset Relief Program (TARP) to community banks as incentive to lend.  And, of course, beyond the job-creation and no-government-cost elements is another major policy imperative: small businesses are still in need of capital, and they’ve not been able to get it from the banks.  Federal Reserve Board Chairman Ben Bernanke flagged the problem in a speech this month, noting banks’ outstanding loans to small businesses fell in the first quarter of 2010 to $600 billion from $700 billion two years prior. He added that only 40 percent of small business that tried to borrow last year had all of their borrowing needs met.

Many credit unions can provide specific examples of small business borrowers turned away by banks, and the media has been paying attention.  A May 27 Wall Street Journal story (“Credit Unions Fight Cap Law”) spotlighted two such borrowers—a bagel shop owner in San Antonio, Texas and the owner of an inn and cultural center in Albuquerque, New Mexico.  Thanks to her loan from Randolph Brooks Federal Credit Union, the bagel shop owner just hired her 13^th employee, the Journal noted, adding that the credit union helped after the owner had been rejected by several banks.

Too often, the banks aren’t lending. Yet they are the ones seeking to block the MBL legislation.  If the issue heats up again soon as expected, CUNA, leagues and credit unions will need to block the banks.  That  is where the grassroots efforts that were ramped up on the interchange fight will have residual benefit, both going forward as grassroots are again called upon—and by calling back to mind what legislators saw in recent weeks.

“Members of Congress have good memories; so do their staffs,” says John Magill, CUNA senior vice president of legislative affairs.  “They’ll remember vividly the massive response on interchange, which will definitely have a spillover effect on MBLs.  There will be instant recall of something that happened so recently, and it will have a positive effect on our lobbying efforts.”

Primary election season is in full swing, and for those of us who follow politics for a living, 2010 is shaping up to be an odd year indeed.  There are a lot of fascinating story lines, but one trend is apparent across states and districts so far:  the voters are angry.  And not just at one party or the other – voters are angry with Washington in general, and longtime incumbents in particular.

Consider the three casualties among incumbents thus far:

Sen. Bob Bennett (R-UT) lost his bid for a fourth six-year term at the Utah Republican Convention despite his nearly perfect ratings from virtually every major conservative organization.

Rep. Alan Mollohan (D-WV), a 14 term incumbent whose father held his seat before him, was defeated by a virtually unknown Democratic state senator.

Sen. Arlen Specter (D-PA)’s fifth term in the Senate will be his last, as he lost to Rep. Joe Sestak (D-PA) despite the support of virtually the entire Democratic establishment, from the White House on down.

Each of these major defeats has its own unique story – Bennett lost in a convention process that magnifies angry activists; Mollohan was dragged down by repeated ethics questions; Specter faced questions about his integrity following his party switch – but the one common thread in each of these stories was incumbency.  And we’re talking longtime incumbency:  in just three races, voters turned their backs on 76 years of combined service in Congress.

If there is a take-away from these shocks to the political landscape, it is this – incumbents, no matter how long they have held office—should be running scared.  And maybe those who have been in office the longest should be worried the most.

So what does this have to do with credit unions?  We can’t take for granted that our friends in Congress will be there next January just because they already have been.  We owe it to those incumbents who have supported credit unions to do all we can to help return to office.

If we don’t, we may wake up Wednesday, November 3rd to find that some of our best friends in Congress are no longer there to help us.

With the power Congress holds over our industry’s future, it is no wonder that credit unions across the country are paying close attention to this fall’s midterm elections, in which all 435 U.S. House seats and 36 U.S. Senate seats will be up for grabs. Indeed, the political junkies among us are salivating over the prospects of a close, contested election.  Here in Washington, the latest parlor game has become guessing how many seats Democrats will lose this fall.

Yet with 24-hour cable television, talk radio, newspapers and online news all focusing on the latest political rhetoric, it can be hard to cut through the clutter and figure out what really matters.  Just what can the astute observer look for in his attempt to predict the future?

So as a service to all the armchair Roves and Axelrods out there, this is the first in an occasional series of modest attempts at analyzing the trends and factors driving the political landscape this year.

For the first installment, a little American political history.  It turns out one of the biggest predictors of midterm election results hinges on the fate of a public official not even on the ballot: the President.

The President’s party almost always loses seats in midterm elections.  With just two exceptions in the House (1998 and 2002), and four in the Senate (1962, 1970, 1998, and 2002), this holds true for every midterm going back to Franklin Roosevelt’s second term in 1938.

Thus, the question is not whether Democrats lose seats this fall, but how many. And that’s where the President’s approval rating comes in.

When the President’s approval rating on election day is at or below 50%, the President’s party loses seats.  Only if the President’s approval is above 50% is there any hope for his party at all – and then only if it is way above 50%.

In fact, according to a recent analysis by Bill Schneider, distinguished senior fellow at the centrist think tank Third Way and senior political analyst at CNN, the average loss of seats in midterms going back to 1970 numbers 10 lost House seats and 1.5 lost Senate seats in years when the President’s approval rating is greater than 50%.  And when the President’s approval is below 50%? His party lost an average of 31 House seats and 4 Senate seats.

In fact the correlation is so strong, an approval rating in the 50s is not even enough to save the President’s party.  Presidents Nixon, Reagan and George H.W. Bush all lost seats even though their approval ratings were each north of 58%.Presidents Clinton and George W. Bush had to attain approval ratings of 66% and 63% respectively to break the trend and pick up seats for their parties (a mere five House seats for Clinton in 1998 and eight House seats for Bush in 2002). (source)

So those Democrats in Congress worried about their majorities would do well to pay attention to President Obama’s approval rating.  And just how is the President doing these days?  Pollster.com‘s average of major national polls taken in April shows the President at 47% approve, with 48% disapproving of his job performance.  Time will tell if the Democrats—and from their vantage point, the White House—can turn things around before November.