 Good afternoon, my name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2014 U.S. midterm election conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Michael Echter, Director of Corporate Communications and Marketing for MSL Group in North America, you may begin your conference. Thank you. Good afternoon, everybody. I'd like to introduce Stan Collender of Corpus MSL Group. As many of you know, Stan has been very closely tracking the U.S. midterm election this year. You may have seen him this morning, guest hosting on Bloomberg TV, or heard him on NPR or many other places in the media over the last several days. Stan is one of the nation's leading experts on the U.S. budget and the congressional budget process, U.S. monetary policy, and Congress and Wall Street's response to Washington's tax and spending policy. He is one of only a handful of people who have worked for the House and Senate budget committees. He's also a regular contributing columnist to Forbes.com. Stan? Mike, thank you, and thank you, everybody, for dialing in today. I don't want to go over too much of the actual numbers from last night. I'd rather talk about the implications, but let's just say the following to get started. This was an unexpectedly large victory for the Republican Party on almost every level you could possibly imagine, not just the Senate and House, the Senate with the additional seats, but the additional governors, including in some very blue states like Massachusetts and Maryland, state legislatures, which went red. And so, again, there was what undoubtedly can only be called a wave election. This was not an anti-incumbent vote. This was an anti-democratic vote, or as many people are interpreting it as an anti-Obama vote. The key question, though, is what does it mean? Whether you've got legislation you want to prevent from happening or legislation you want done, whether you think the country needs a new direction or, you know, would just like to get everybody together to do more, does this mean that the world has changed? Does it now mean that members of Congress on the Democratic side, in particular, are chastised by these losses and are now going to join hands with their Republican brother-in-in and Tsing Khoombaya? The answer is a resounding no. In fact, in spite of the big numbers, and I'll explain why in a moment, in spite of the big numbers that the Republicans have won, or gained, excuse me, we don't see a whole lot changing. And in fact, the stalemates, the policy stalemates, the political stalemates that have been so frustrating to Americans, at least according to the exit polls released last night, the frustrations that Americans felt are likely to be intensified over the next couple of years. Let me get into that in a little bit of detail. Number one, keep in mind that the 2016 election started at midnight last night. That was about the time when the Republican takeover of the Senate became clear and secure, but all the statements you've seen made by Republican leaders, by Republicans in general, you know, or are all at least talking, are at least directed towards the 2016 election. I know there's a certain amount of fatigue about elections at this point, but believe it or not, there's only about 750 days left before the voting takes place, and that's a presidential year, so it'll get pretty intense. That means that next two years are going to be pretty intense politically as well. And a lot of what the Republicans will be doing over the next couple of years, when they're in control of both houses of Congress, is not necessarily to get legislation enacted in spite of some of the statements that were made, but to put, provide, to pass legislation that'll be sent to the White House that the President will veto. And here's what you need to understand. Yes, the Republicans will have perhaps a 57-43 majority, when all is said and done in the Senate. And yes, they will have picked up 12 seats or so in the House. But in either the Senate or the House, will the Republican pickups give them enough votes to override a presidential veto? You need a two-thirds vote of each House voting separately, and the Republicans will not have that. So their choice will be to either come up with a plan that's a compromise with the President, accommodate some of his wishes so that he was willing to sign it, or send him legislation that he's not willing to sign the vetoes and therefore have an issue. At this particular point, it looks like the issue is winning out. In fact, if you heard Paul Ryan, the incoming chairman of the Ways and Means Committee, the outgoing chairman of the Budget Committee, he said last night that they were only going to go so far in accommodating the President, and instead, we're going to insist on their principles. This is very much in keeping with something I heard and first learned in February 2011. I was the first speaker at the first meeting of the House Tea Party Caucus. And one of the things I will never forget is the Tea Party chairs from Virginia, Pennsylvania, and Florida, who spoke after me, said to the 20 or so Tea Party members who were there, quote, compromise is a sin, unquote. That's an exact way they phrased it, a sin. They also said that working with the other side, working with the Obama administration was, quote, collaborating with the enemy, unquote. This is not a group of folks who even have the permission from their own voters to compromise and collaborate. So I think you're going to see that the stalemates that have happened over the last couple of years will continue. They may be different. That is, instead of the House passing something and the Senate refusing, where the House passing something and the Senate passing something different, and the two bodies refusing to work with each other to try to compromise, what you may see is the House and Senate coming up with the bill, they send it to the White House, the House, the President vetoes it, and the votes don't exist to override. And so in spite of the fact that legislation has been enacted, nothing happens. There is another reason that you should keep in mind that not much has changed. There will be tremendous differences between House and Senate Republicans over the next couple of years. The House with its 12 additional Republican seats has gotten a little bit more conservative and a little bit more Republican, and it was already more conservative than their colleagues in the Senate. Yes, many of the senators like Joni Ernst of Iowa and Tom Cotton of Arkansas are more conservative than the people they replaced. And yes, some of the other senators are replaced, retiring Republican senators are more conservative than the ones they replaced. But, and this is what's important, in 2016, 24 of the 34 senators up for reelection will be Republicans making them politically vulnerable, making votes on a lot of the very conservative things that the House wants them to vote on, politically untenable. What will make it more difficult for the Republicans up for reelection to vote for some of the things the House wants is the fact that many of them represent blue states, states that Obama won at one point or another. And so it was always going to be a difficult reelection for them to begin with, it will be made more difficult if their Republican colleagues in the House forced them to walk the plank on such issues as Medicare and Medicaid, Social Security and some other things like that. Politically difficult votes. What happens if Mitch McConnell, the presumed incoming Senate majority leader, the one who replaced Harry Reid, what happens if Mitch McConnell decides to try to protect his, quote, moderates, unquote, moderate Republicans? Well, that would create a new challenge for him. It means that Ted Cruz and Rand Paul and some of the other, you know, some of the other Tea Party senators will threaten to vote and may very well vote against the more moderate package that McConnell tries to come up with to protect his people. So you've got this interesting dynamic. It almost makes the Democrats irrelevant because the real discussions will be between House and Senate Republicans. And the discussion will be not only is there something we want to do or can do, but is there something we want the president to sign or veto? My guess is that over the next two years, you're going to see a little substantive legislation that the economy will roll along with not get a big boost from anything that Congress is doing and that with the exception of a very few series of issues, it'll be more of the same. What type of issues? Well, ironically, the president has been trying to get fast track trade authority from the Democratic Senate. Harry Reid has prevented that from happening. Republicans are in favor of fast track authority. So he may the president may very well get that. Now that's that's a rational argument, not a political one and time will only tell. The same thing is true with the Keystone Pipeline. That is also something that he may get more, have the more favorable treatment from the Republicans. But if you're asking about judicial nominees, ambassadorial nominees, nominees for cabinet and sub-cabinet positions that require Senate confirmation, the overwhelming likelihood is few, maybe none of them will actually get confirmed over the two years. That could create a huge problem, especially in the judiciary, judges die, judges retire. There are four judges in the Supreme Court that are over 70 years old. If one or more of them decide to leave, it is unlikely that the Republican Senate is going to allow Obama to name the federal judge and then confirm them. You can name them, but they won't confirm them because federal judges serve for life and therefore would last long beyond the Obama term. So the bottom line for all of this, and then we can try to take some specific questions. The bottom line for all of this is that not much has changed. Yes, the numbers are dramatically different. Yes, the Democrats are hurting. It's one of the biggest losses for a party in American history. Republicans will have more seats in the house at any time since Harry Truman was president in 1948. Does it mean, does it usher in a new era of bipartisanship? The answer is almost certainly no. The only two things that could change this would be either some huge crisis that allows a member of Congress, Democrat or Republican to move from his or her established position, something where his or her constituents would say, we know you told us you wouldn't do this, but it's okay. You've got to deal with whatever this is or and or a charismatic leader who can take advantage of this crisis situation. The problem I have with them, and this is the way it's done throughout, it's been done throughout American history and this is what's changed the outlook. The problem is we've got crisis fatigue in this country. We've had so many big crises, things that have been almost unimaginable like 9-11 Ebola and some of those types of things, the financial crisis. It's hard to imagine a crisis being big enough and worrisome enough that the average American wouldn't, would simply give his or her representative or senator the ability to move from their position. Instead they're more likely to point the finger and say it's your fault, whoever the other person might be. And the second thing is I'm not sure I see on the horizon the kind of charismatic leader who can take advantage of this situation. So until one or both of those things happen, I think we'll be muddling through for the next couple of years. So with that in mind, Mike, can we try to take some questions? Sure. Operator, can you see if there are any questions? At this time, I would like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. And Stan, while we're waiting, could you talk a little bit about what this means to the PR industry? Yeah, interestingly enough, it should provide a variety of additional opportunities for us and for our clients. Clients are going to need to communicate to new people up on Capitol Hill, let staffers and members, you'll have new reporters will be getting different beats, covering different folks, but the issues will have to be re-litigated. Things that have been hanging around on Capitol Hill but not being dealt with will get some new life. It may only be hearings. It may even be a bill being debated and not going through, but there will be a need to not just sit back and assume that people understand what you've done before. In addition, you've got a new Congress that's much more digital media savvy. They use media in ways that hasn't been done before and it's certainly not when I came, when I first got to the Hill, we were just trying to get a press release fax. It would take four minutes of page and we had to take the receiver and put it in a couplet and we were just trying to get it out to get to beat the evening, the afternoon newspaper deadlines. Now communications is instantaneous. Members want data. So groups want data and they want their members to be able to communicate directly with members of Congress instantly. So there should be lots of opportunities and we need to get out there and explain what has to get done. Great. Operator, it looks like we have a question. Your first question comes from the line of Paul Newman with MSL group. Your line is now open. Stan, it's Paul here. Firstly, congratulations on being so lucid with so little sleep. I know you're working through the night and I also caught you on Boomberg TV this morning. My question is one around communications. Which of the parties communicated well or not and anything we can learn because there will be many communications experts on this call. Any communications lessons out of what happened? Well, Paul, I'm going to need a couple of more days to figure out exactly what happened communications wise. One of the things we do know is that the Republican get out the vote effort matched what Obama did in 2012. If you may remember that after the Romney campaign, there was a lot of criticism about how that campaign just didn't have the technical where with all to match what Obama was doing. There were a lot of folks in the Democratic side who were relying on that advantage this time and it didn't show up and that's because through social media, through a variety of big data collection, through a system of being able to communicate with their volunteers, Republican Party in a variety of states was able to have a far more effective communications plan that didn't rely on just phone calls but on data collection. So I suspect what we're going to hear when this is over is that the move towards digital communications and political campaigns has accelerated and that there'll be a race for 2016 to see what the next big step is going to be. It's a great opportunity for professionals like us to try to lead the way and try to understand both what their needs are and how they can be met. Thank you. So Sam, you know, this has been a year where MSL group has communicated a lot about Millennials and how Millennials are active citizens. Was there any indication last night that Millennials turned out in large numbers to vote or is it still too early? Yeah, actually Mike, it's just the opposite. The traditional pattern is that the younger you are, the less likely you are to be registered and vote. There was something thinking that Millennials given how concerned they are about their own future and about the economy would break that pattern. The exit polls last night showed and this was last night that once again that age group with the was the lowest vote it was the lowest demographic in terms of percentage of voting. It was less than 15% by contrast. 50% of senior citizens voted of those who were registered voted. Now that's again, that's a very traditional pattern where the younger you are, the less likely you are to vote. And one of the things we don't know at this point is how big the turnout was overall. It looks as if white males over 65 voted in higher percentages of this election than they have in the past. Women voted in slightly smaller percentages and didn't vote as high for Democrats as they have in the past. But the Millennials just didn't didn't take part in the political system. And my guess is it's going to result in their continued disaffection from it. That is, they, you know, that they're not going to be energized by the changes. They're going to be, you know, they just going to say, look, I didn't participate. I didn't care. You know, and I'm not going to participate the next time either. Typically, you've got to get to be 29 to 30 before you start to get there. So you had mentioned the the importance and the impact on the trade agreement. But is there any other? Is there any or fast-track trade? The trade fast-track trade. Are there any other impacts globally for, you know, many of our companies that are our clients that are running global businesses? Well, look, the biggest thing that I've been asked for the last 24 hours by clients and by people at MSL is what about tax reform? What, excuse me, specifically, what about corporate tax reform? Is there something that's going to happen about tax inversions? That's the tax strategy the company's used to store money overseas and not repatriate it. And what the hope is, is that a lot of companies will have the opportunity to bring the money back into the United States at low tax rates. You know, very, very low tax rates. I need to be as specific here as possible. While it's certainly possible that Congress would take up tax inversions by itself, it's far more likely that they're going to do it as part of a comprehensive tax reform package. Maybe only corporate tax reform, but I suspect that there'll be a lot of members of Congress who will refuse to take up corporate tax reform unless it takes up individual tax reform too. The last time we had a big tax reform package was in the 1980s. It took three years. When life was a lot simpler. When there was no Rush Limbaugh, Rachel Maddow, or social media, or Tea Party, when the bill was going to be revenue neutral from the beginning. We don't have any of those things now. There's going to be a push for revenue positive. That is to gain revenue. We have social media. We have cable television. We have the Tea Party. If it took three years in the 1980s, I'm guessing it's going to take at least three now. The only way it'll happen is after the 2016 election. There'll be some discussions about it, but this is one of the big issues for our clients. Corporate tax reform. And I suspect it's just not going to move forward very much. There just isn't enough consensus to do much about it. Plus, and let me be very, very cynical. The longer members of Congress can keep it alive, the more likely they are to collect political donations from those who want to influence the process. Thanks, Dan. Let me remind our listeners that if you have any questions to please, please indicate that and operator, that's by pressing 1. It's star one on your telephone keypad if you would like to ask a question. Terrific. And Stan, while we're seeing if there are any further questions, can you talk about the Affordable Care Act? Are the Republicans going to try to repeal it? Will it have any traction at all? Which is a great question. And it's also one I've been getting all day. The answer is certainly there will be some effort or efforts by Republicans to repeal or replace or do away with parts of the Affordable Care Act, also known as Obamacare. If you remember, the House voted 50 times or so over the last two years to repeal it. Knowing full well the Senate was never going to take it up and if the Senate did and passed it, the President would veto it. That same dynamic pretty much exists here. The House is almost certainly going to try to repeal parts or all of Obamacare. The Senate made this time pick it up and go along with what the House does and it is impossible for me to imagine the President signing legislation that would do away with one of the signature legislative accomplishments. Now, there is a process that can be used. In fact, Mitch McConnell has talked about it. If Congress can agree on a budget or a budget resolution, something it hasn't done for five or six years, it can use a process known as reconciliation to consider eliminating parts of the Affordable Care Act. Not all of it, just parts of it. It has to, it can only deal with the parts of the Affordable Care Act that have budget implications that spend or tax money up or down. The problem there is, and well, the good news about reconciliation is that it can't be filibustered. It's a simple majority vote. There's a limited on time and after the time is up, you take a vote on it period. But the bill can be vetoed by the president. So the bottom line to your question, Mike, is I think there'll be lots of smoke on this one. You know, it is something that Ted Cruz and others promised last night that they would take up as almost a first priority. But I don't think it'll be successful. In fact, I'm pretty sure it won't be. That if the only way you're going to get Obamacare out of there is after Obama's term is over and by then enough people may be on it that it'll be impossible to take the benefits away from it. Thanks, Dan. It looks like we have another question. Your question comes from line of David Close with MSL Group. Your line is open. Hi, Stan. Really, really interesting analysis. I'm curious about something to see if you have any thoughts about it. There's been so much written about the dark money in this election and that this was really the first large election after the Supreme Court kind of helped enable that. Did you see evidence that all of the dark money really, I guess, on both sides made a difference or was it sort of self-canceling? Well, it's dark so I haven't been able to see it yet. There were some reports that a number of nonprofit groups sprung and super PACs sprung up in the last two weeks, last three weeks of the campaign so late that they wouldn't have to report until after the election about what they spent their money on and who they got their funds from. The reports were that they had spent literally millions of dollars on TV advertising, in particular in a lot of key center races. I can't imagine that didn't have an impact. I mean, I live in Virginia. I saw all the commercials that were pro Ed Gillespie and anti-Mark Warner. I know Mark and I know how much money he had to spend and I know a lot of it was coming from other places. But to stop beating around the bush, Dave, I don't know who had the advantage. I mean, you tend to think that it's coming from the Republican side but we don't know that for sure and in fact, Haley Barber last night was being interviewed on CNN and said that Democrats had more money. Now, you would expect that from Haley Barber. He's a former Republican National Committee Chairman and former Republican governor of Mississippi. So he's not necessarily going to be objective about it but that information will probably come out over the next two or three weeks. But let me just add something to that. Will this change anytime soon? Is there any chance that the Supreme Court will review these decisions over the next couple of years? The answer is no. Thanks, Stan. So you mentioned that the 2016 presidential election started last night. What is yesterday's results mean to the various potential candidates? Unannounced candidates? That we've heard about. How does the playing field change? And what do you think might happen next? Well, let me give you a little historical perspective. Traditionally, throughout American history, American voters have turned to governors when they've looked inward. That is when the problems haven't been international relations or military but more everything from recessions to depressions to infrastructure problems, those types of things. Americans have typically turned to governors as a presidential choice. That bodes well for the Republicans. You had many Republican governors and Republican candidates win governorships last night. The two most interesting who become very three most interesting to me become either very viable or more viable candidates for president are John Kasich, the big winner in Ohio. He's reelected. I know him from when he was chairman of the House Budget Committee and he's a more moderate but he's a fiscal conservative but a social moderate. I don't know whether you can get the nomination but he was a big victory in Ohio and that should propel him forward. The second was Scott Walker, the governor of Wisconsin is now one. I think it's three elections in the last four years including a special election. And although he's had some problems there and Union Stadium, you can't deny the fact that the man has been able to stay and is likely to be looking to run nationwide or at least to explore it. The third governor you can't ignore at this point is Chris Christie. Not because of who he is as a governor and certainly not because of some of his recent problems but because he's chairman of the Republican Governors Association and he campaigned for virtually every Republican governor who won last night making it's making him somebody they're beholden to and it propels him forward. There are two other things I should mention though and then maybe this is a good way to close the call. I am convinced that one of the big losers last night was Mitt Romney. Now he wasn't on the ballot. You know he did campaign for some people but over the last several months he started to hint that he you know he although he said he wouldn't run for president again he might be willing to consider it but with the large number of additionally viable Republicans now you know available to run for president. The likelihood that the party will turn back to Romney as their savior. Or for that matter good Jeff Bush became dramatically less last night. There are too many others Ted Cruz Marco Rubio the governor's I just mentioned some of the senators like Rand Paul reduces the likelihood that that Romney is someone that they think of and think of seriously. The other big winner here though is probably Hillary Clinton. The Democrats are flailing obviously around they they're not sure which way to go and they're looking for just some direction and someone who can lead them. Hillary and Bill Clinton. Are the two leaders of the you know are the two folks who could campaign for anybody and you know and bring them and bring them some luck and bring them some good tidings in an election. The poll show that if bill were to run for reelection today he'd get 65% of the vote. Overall and a lot of people think they'd be voting for him when they vote for her. So I would say on the Republican side you've got more candidates now who are available. Some fresh names and it's hard to imagine anybody not coalescing or coalescing around the Clintons at this particular moment. So thanks Dan. If there's any final questions we'll give you a chance to press one now. As a reminder that is star one on your telephone keypad to ask a question. All right then I have a favorite to ask everybody. My Twitter handle is at the budget guy and I have a competition going on with someone in the office in Washington about who's going to have the most followers. So you would all be doing me a huge favor if by the end of the day you followed me at act the budget guy. And if there's ever any additional questions the entire staff in Washington is available for you to help you out. Let us know. Thanks Dan. My pleasure.