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*Special Update- Election Analysis*

* *

A Republican resurgence delivered defeats to House and Senate Democrats, as
the party picked up at least 60 seats in the House and 6 in the Senate. The
tide swept aside dozens of lawmakers, regardless of their seniority or their
voting records, upending the balance of power for the second half of Mr.
Obama’s term. The departure of both freshmen and long-tenured members of
Congress will result in new Congressional leadership, new composition of
House and Senate committees, and correspondingly new legislative priorities.


Three House Democratic Chairmen and a host of Democratic rank-and-file
members were swept up in the Republican wave on Tuesday. But in the end, the
moderate Blue Dog Democrats bore the brunt of the pain in this election. Of
the 54 Blue Dogs in the House, only 24 won reelection. Half of the
Democratic losses were Blue Dogs. Because of this, the Democratic
conference, much smaller than in the 111th, is expected to be more liberal
than its predecessor. In addition, new members in both parties may see an
increase in power, as the 112th Congress will have 93 new House Members and
16 new Senators.


Conventional wisdom states the 112th Congress is one that will likely, given
the ideological divide between the House and the Senate, result in
legislative gridlock. With the GOP in control of the House and the Democrats
holding onto a narrow majority in the Senate, it is not likely that this
legislative session will be as productive as its predecessor. The tone will
be set immediately during the lame duck session as both parties look to come
to some agreement on an extension of the Bush tax cuts.


1. *Wave Elections*

This election saw one party not only gain significantly more power, but also
shifting coalitions, the signature of which is usually that the rising party
performs particularly well in certain geographic regions or among certain
demographic groups.

The 1980 election, for instance, was arguably the beginning of a long-term
shift toward Republicans in America’s suburbs, with Jimmy Carter’s share of
the suburban vote dropping from 53 percent in 1976 to 37 percent in 1980:
the 16-point swing against Mr. Carter was about twice the one he suffered in
cities or rural areas. Likewise, in 1994, the shift against Democrats was
particularly sharp in the South: 19 of the 52 representatives they lost came
from that part of the country. The 2010 elections, by contrast, were
remarkable for their orderliness — and they tended to reinforce, to an
almost uncanny degree, existing political coalitions.


If Democrats are expecting to do better in 2012 than they did this time
around, they might actually be pleased that elections have become so
strongly aligned to partisan orientation. They now have just 12 seats in
which Mr. Obama won a minority of the vote to defend whereas Republicans
have 55 where he took the majority. So if there is even a fairly modest
shift back to Democrats in 2012, and the shift is again fairly uniform, they
could be in a position to achieve quite a few gains and you could see
another “wave” election.


Generally it seems like we have entered a period, in which races for
Congress have become highly nationalized, and in which few potentially
competitive races are conceded by either party and few incumbents are given
a free pass. That could mean we’ll continue to see some wild swings over the
next several election cycles.


Women and independents voters showed the biggest swing from Democrats since
the 2008 election. In both demographic groups, the percent of eligible
voters remained constant from 2008 to 2010. But their preferences had a big
impact on the GOP win. Whereas the gender gap played a major role in 2008
with women voting for Democrats 56 percent of the time compared to
Republicans 42 percent of the time, in 2010 the split was 49-48 percent for
Democrats to Republicans. Likewise, independent voters supported Democrats
51 percent of the time compared to 43 percent of the time for Republicans in
2008. But in 2010, the Democrats garnered only 39 percent of the independent
vote compared to 55 percent for the GOP.


*1. **Fate of Speaker Pelosi*

House Speaker Nancy Pelosi (D-CA) has decided she will try to stay on as
leader of the House Democrats, even as many of her colleagues think that the
widespread defeat indicates the need for new party leadership. Allies said
they doubted Pelosi would make the bid unless she felt certain she had the
votes from her colleagues, who are proportionately more liberal after many
conservative and moderate Democrats were defeated. Blue Dog Rep. Heath
Shuler (D-NC) is challenging Speaker Pelosi for the top minority leadership
position although he admits he does not have the votes to win.


Pelosi's decision to hang on as leader of the House Democrats surprised and
confounded some of Washington, including many in her own party. However,
there is a strong belief that her skills as legislator and fundraiser are
what is needed now. No other House Democrat can match her at raising money,
which is no small concern for a caucus that is out of power and headed into
an election cycle in which the presidential and Senate races will get most
of the resources. With experience in leading both the minority and the
majority in the House, Pelosi is also unsurpassed at counting votes and
holding her caucus together.


There is another factor that is working on Pelosi's behalf - mistrust of
their own president on the part of many House

Democrats, especially those who remember President Bill Clinton's
"triangulation" strategy after the Democrats' defeats in 1994. The most
recent election wiped out many of the House's more moderate members, leaving
a surviving caucus that is decidedly more liberal and determined to defend
policies enacted under their watch. But with President Obama's reelection on
the line, they worry the president will compromise more with the GOP as
Republicans move forward with their strategy to roll back his policies.
Pelosi, they believe, will push back against any reversal of the hard-fought
policy gains, especially the health-care overhaul, which cost her caucus so
much. The Democratic caucus may also complete the third side of the
triangle and be beneficial to Obama, allowing him to play both sides off
each other and take the more moderate stance.


*2. **Lame Duck session*

Congress is back in Washington and despite all the election hoopla,
Democrats are still in control of the House and Senate. Two new members of
the Senate, Chris Coons (D-DE) and Joe Manchin III (D-WV) have been sworn
in, but their presence will not change the partisan makeup of the Senate for
the moment. The partisan balance is not expected to shift until after
Thanksgiving, when Mark Steven Kirk (R-IL) is to be sworn in to the seat
that had been held by President Obama. Much of the action will be off the
floor as the parties gather to elect leaders. Representative John A. Boehner
of Ohio is set to become the House speaker while Representative Kevin
McCarthy is expected to officially join the leadership ranks as the new
majority whip. The Senate leadership lineup in both parties is expected to
remain the same. Lawmakers are set to remain in session this week, break for
Thanksgiving next week, and then return the week of Nov. 29 for potentially
two more weeks in order to complete their work. The lame-duck session,
expected to end by mid-December, will only hint at the new dynamics of
divided government in Washington. A fuller picture will unfold as Republican
leaders grapple with the demands of the Tea Party and Democrats cope with
internal tensions caused by Speaker Nancy Pelosi’s decision to run as her
party’s leader in the House.


a. Expiring Tax Cuts and Unemployment Benefits

A top priority in this lame duck session is resolving the issue of the
expiring Bush tax cuts. Obama has loosened his longstanding view that tax
cuts should be extended permanently only for households earning less than
$250,000 a year. Democrats had argued that the country cannot afford the
additional $700-billion cost of tax breaks for the wealthy, who account for
fewer than 2% of American taxpayers. Republican leaders have been insisting
on a permanent extension. However, with indications that the President is
open to temporarily continuing the tax breaks for the higher income
households, some Republicans and their top supporters also appear to be
softening their stance that all tax cuts must be permanently extended. The
likelihood is that a compromise will be struck.


Uncertainty is also looming over the continuation of emergency unemployment
benefits as time is running out before the latest extension expires at the
end of November, after which upwards of 2 million people could be without
federal emergency benefits. Lawmakers will have to balance that extension
with the remaining hefty agenda that includes decisions on whether to extend
the Bush-era tax cuts, patch the alternative minimum tax and pass a
continuing resolution to keep the government running, at least into next
year.

In the overall debate, the lame-duck battle could serve to magnify the
starkness between the estimated $65 billion price tag to extend emergency
benefits for one year -- up to 99 weeks of benefits that are provided after
workers exhaust the 26 weeks offered by states -- and a $700 billion
addition to the deficit to extend tax cuts for workers in higher tax
brackets. The clash between Democrats and Republicans will likely set up
another round of arguments over deficit spending on the unemployment
benefits extension weighed against the tax extensions that the GOP is
arguing will directly affect the nation's economic recovery. If Congress
passes a short-term extension it would leave workers hanging and unlikely to
see any additional benefits when -- two or three or up to six months -- it
will be much more difficult with Republicans in control of the House and the
Democrats' majority in the Senate slimmed by six seats.


*3. **112th Congress

*

a. Incoming Class

The new class of lawmakers will contain the highest number of members with
no experience of elective office in decades. The Tea Party movement, the
broader anti-incumbent mood and the sheer amount of turnover combined to put
into office doctors, small-business owners, a dentist, a pilot, a youth
minister and a popular local pizza man, among others. It remains to be seen
how much impact the new class of inexperienced politicians will have on
legislative matters. And it may be a few years before it is clear whether
they change Washington or whether Washington changes them — history suggests
that outsiders tend to become insiders relatively quickly and to drop
pledges of adherence to term limits in favor of the power that comes with
seniority. But they are almost certain to have an immediate impact on the
flavor and dynamic of the Republican caucus, where leaders are already
carefully measuring newcomers, who are coming to town not simply to serve,
but in many cases to overhaul what they believe is an inept body. One
indication of the new power and the potential for change is the earmark
debate. Senate Republicans joined their House colleagues by signaling they
planned to vote in favor of eliminating earmarks. While non-binding, this is
clearly an important symbolic nod to the tea party and a rebuke to those in
the Senate who were in favor of doing business as usual.


The natural comparison to this incoming class is that of 1994, when a host
of citizen lawmakers was elected in a challenge to President Bill Clinton
and a Democratic-controlled Congress. However, at that time, Republicans had
been out of power for decades, and there was little party structure or
discipline to try to keep newcomers in line. Mr. Boehner, of Ohio, who was
elected in 1990, became chairman of the House Republican Conference after
the 1994 election, and saw firsthand how unruly newcomers and a lack of
fealty to leadership can cause trouble.


b. Boehner and Obama

The contrast between President Obama and Rep. Boehner undercuts the popular
comparison to the dynamic in 1994, when the Republicans swept to power and,
led by the new speaker, Newt Gingrich, challenged the Democratic president,
Bill Clinton. Despite their partisan differences, Mr. Clinton and Mr.
Gingrich had much in common in their backgrounds and paths to Washington.
Even as they clashed, Mr. Clinton and Mr. Gingrich understood each other in
a way that defined the politics of the 1990s. Mr. Clinton and Mr. Gingrich
could spend hours in policy discussions. In the 1980s, President Ronald
Reagan and Speaker Thomas P. O’Neill Jr. shared evening drinks and Irish
storytelling. So far, at least, Mr. Obama and Mr. Boehner have spent
virtually no time together and have made little effort to forge a bond.
Aides said they could not recall a single one-on-one meeting or substantive
phone call.

Their relationship took root in the early days of the Obama presidency when
Boehner came out against his economic stimulus package before Obama’s visit
to the Hill to discuss the package. That moment stuck with Mr. Obama, who
recalls it regularly as proof that Mr. Boehner was not genuinely open to
discussion. In the end, Mr. Boehner secured unified Republican opposition to
Mr. Obama’s priorities in his first two years, including the stimulus,
health care and financial regulations. However, Mr. Boehner’s post-election
language has been muted in comparison with that from his Senate counterpart,
Mitch McConnell (R-KY), who said his top priority was to make Mr. Obama a
one-term president. Boehner has reached across the aisle several times, most
notably with Senator Ted Kennedy on education. Yet the politics of his own
caucus make that harder today. When he hinted that he might go along with
Mr. Obama’s plan to extend Bush-era tax cuts for the middle class and not
the wealthy, he was pummeled by fellow Republicans. Mr. Obama is not the
gregarious politician that Mr. Clinton was. He does not invite political
adversaries, or even political allies, to play golf. It is obvious this
relationship will take some time to develop as they need to work to bridge
their differences and develop trust.

c. Dodd-Frank

Despite a new majority in the House, Republicans will most likely not be
able to roll back financial regulatory reform, but they can make it
significantly less effective. The law calls for regulatory agencies to flesh
out the legislation through an exhaustive and aggressive rules-making
process set to conclude in July. This is where Republicans can push for some
changes. Defunding may be the most effective tool against the Act as the SEC
has been charged with writing 105 rules, creating 5 new divisions and
engaging in 20 studies, thus requiring more people and more funding. A
second tactic for Republicans to employ is to hold hearings on every new
rule that comes up. This may be their only tactic in slowing down one of the
most controversial aspects of the Dodd-Frank Act, the creation of the
Consumer Finance Protection Bureau. At the same time, even attempting to
defund the new regulations will have to pass a Democratic Senate and
Presidential Veto.


Rep. Spencer Bachus (R-AL), who will chair the House Financial Services
Committee, has already promised that his committee would provide vigorous
oversight. He also has opposed the legislation’s “Volcker Rule” which
requires federally insured banks to spin off their proprietary trading
operations. He backed an unsuccessful amendment that would have conditioned
the rule on the adoption of similar standards by a majority of the G-20
nations. The Senate Banking Committee, which oversees the SEC and financial
matters, will also have a new leader as Senator Christopher Dodd (D-CT) did
not seek reelection. Senator Tim Johnson (D-SD), a banking industry ally,
will likely become chair.


*4. **2012 Preview

*

· In the House, the Republican wave couldn’t have come at a better
time as now the GOP has unilateral control of redistricting in key
battleground states for the upcoming election cycle. This will allow the GOP
to protect many of their newfound majority-makers and redistrict other
Democrats out of existence. The states slated to gain House seats- Arizona,
Florida, Georgia, Nevada, South Carolina, Texas, Utah and Washington- as a
whole tilt in favor of Republicans. The ones projected to lose
representation are predominantly Democratic: Illinois, Iowa, Louisiana,
Massachusetts, Michigan, New Jersey, New York, Pennsylvania and Ohio.
Republicans fully control redistricting in 15 states, 193 House districts,
compared to 44 for the Democrats. This doesn’t imply they will be able to
convert these 193 districts to GOP control because for every majority GOP
district they create they have to create a majority Democratic district. But
controlling the process gives them a leg up. Implications are significant
for 2012 as Republicans have the ability to expand their congressional
majorities in battleground states such as North Carolina, Pennsylvania and
Ohio.

· Democrats will face another tough election cycle in 2012, as they
will have to defend 21 Senate seats- seven of them are in Midwestern states
where Republicans scored major statewide gains on Tuesday. Also up for
reelection are Sens. Joe Lieberman (CT) and Bernie Sanders (VT) the two
Independents who caucus with Democrats — meaning the party has a total of 23
seats to defend.

Democratic Senators facing reelection in 2012:

Daniel Akaka (HI)

Jeff Bingaman (NM)

Sherrod Brown (OH)

Maria Cantwell (WA)

Ben Cardin (MD)

Tom Carper (DE)

Bob Casey Jr. (PA.)

Kent Conrad (ND)

Dianne Feinstein (CA)

Kirsten Gillibrand (NY)

Amy Klobuchar (MN)

Herb Kohl (WI)

Joe Manchin (WV)

Claire McCaskill (MO)

Robert Menendez (NJ)

Ben Nelson (NE)

Bill Nelson (FL)

Debbie Stabenow (MI)

Jon Tester (MT)

Jim Webb (VA)

Sheldon Whitehouse (RI)


· That said, there are early signs that the same intra-party feuds
that limited huge pickups in the Senate in 2010 are re-emerging for 2012.
Members who would be likely locks for re-election- Sen. Richard Lugar (R-IN)
and Sen. Olympia Snowe (R-ME) - could well face serious primary challenges
from Tea Party candidates. And Democratic members who look vulnerable - like
Montana's Jon Tester - could benefit from ideologically divided Republican
fields as many candidates favored by the National Republican Senatorial
Committee -- like those seen this year in Delaware, Kentucky, and Colorado -
end up losing to less-electable candidates. In those states, establishment
Republicans ran into problems as their endorsed candidates went down in
primaries. Republicans believe they could have comfortably won the Colorado
and Delaware Senate races if their favored candidates prevailed.**


*In the next few weeks we will look at how the new Congress will approach
issues left over from the 111th Congress such as energy and immigration, how
they will tackle the reforms suggested by the Deficit Commission, and the
prospects for reform of Congressional procedures such as the filibuster,
which will go a long way towards determining the productivity of this
Congress.*


*From:* Eric Schwerin [mailto:eschwerin@rosemontseneca.com]
*Sent:* Tuesday, November 16, 2010 5:51 PM
*To:* Joan Peugh
*Cc:* Hunter Biden
*Subject:* Re: Election Memo


Can you send in the body of the email as well?


Hunter, I think Joan did a good job answering some of the questions you
asked about how this compares to other years and sets the stage for going
forward. We decided to save some of the issues you raised for future memos
in the coming weeks where we can spend a little more time on Energy and
other substance.


I'll review one more time as well.

Eric D. Schwerin

eschwerin@rosemontseneca.com


Sent from my iPhone


On Nov 16, 2010, at 5:46 PM, Joan Peugh <jpeugh@rosemontseneca.com> wrote:

Attached is the memo for edits. Thanks!


*Joan K. Peugh*

*Rosemont Seneca Partners*

1010 Wisconsin Avenue, NW

Suite 705

Washington, DC 20007

T:(202) 333-1880

F: (202 333-1886

M: (202) 841-8543

jpeugh@rosemontseneca.com


<Special Election Update 11.2.docx