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  • Allon Advocacy

While Congress Fights, Statehouses Legislate

Partisan gridlock in Congress could see more active state legislatures over the next two years.

In the nation’s capital, the U.S. Department of the Treasury is about to hit its statutory debt limit. If Congress does not raise it within the next six months, the federal government will default on its financial obligations, creating economic chaos and wreaking havoc on the markets. Still, members of Congress and the White House are divided about how to proceed.

In an era of divided government, legislating in Washington, D.C. is pretty much at a standstill – and will likely largely remain so over the next two years.

In state legislatures around the country, meanwhile, lawmakers are getting ready for what promises to be some very busy sessions.

This scenario is typical. When power in Congress is split between the two parties, policymakers in the states tend to get a little bit more ambitious. In 2018, after Republicans lost the U.S. House and Senate but were still in charge of the White House, Aubrey Jewett, a political scientist at the University of Central Florida, told Governing magazine that a divided Washington would “leave a policy vacuum that the states will seek to fill.”

Fill it, they did.

In 2019, New York state lawmakers passed gun control measures, a property tax cap, voting reforms, and marijuana decriminalization — all in one year. Vermont lawmakers made huge strides on data privacy in 2019 and 2020. And, during that period, California lawmakers also approved legislation creating a bigger, stronger regulatory agency, the Department of Financial Protection and Innovation, to oversee the state’s financial institutions and fintech companies.

What can we expect from state lawmakers this year?

Bipartisanship Over Partisanship

Over the last couple of weeks, while we were all watching Republican lawmakers in the U.S. House of Representatives fight over who should be Speaker of the House, in at least two states, bipartisan coalitions came together to elect leaders of their statehouses.

In Pennsylvania, lawmakers in the lower chamber of the legislature chose state Rep. Mark Rozzi, a Democrat, to be the chamber’s new speaker after he promised not to caucus with either party and govern as an Independent. Rep. Rozzi’s decision to caucus by himself puts the split in the chamber at 101-101-1. (In the 2022 election, Democrats won by a small margin.)

Rep. Rozzi was nominated by state Rep. Jim Gregory, a Republican. He received 115 votes, besting his opponent, Rep. Joanna McClinton (who had been the Democrats’ choice for speaker), by 30 ballots. Every Democrat voted for Rep. Rozzi — and so did 16 Republicans.

This week, Speaker Rozzi announced he had created a special six-person group that will meet regularly “to find ways for Republicans and Democrats to work together on various issues.”

The Keystone State is not the only where we saw this sort of bipartisan cooperation.

Something similar happened in the lower chamber of the Ohio legislature too, where Republicans carried the day in the 2022 election.

In Ohio, the state Republican party endorsed a conservative candidate for the speakership. That member of the Ohio House, Derek Merrin, actually had been chosen as presumptive speaker by the Republican Caucus in November. (Like in the U.S. House of Representatives, the candidate for Ohio speaker of the House is first chosen to be put forward by his own party. To take office officially, a majority of the full chamber has to vote to elect the speaker.)

During that November ballot of just Republicans, Merrin received just 44 votes — enough to gain approval by his party, but not enough for a full majority vote.

When it came time for state lawmakers to vote this month on the Ohio statehouse floor, moderate Republicans joined with Democrats to elect Jason Stephens, a Republican, as speaker. As PBS reported, Stephens received “yes” votes from 32 Democrats and got 22 votes from his fellow Republicans.

Governing from the middle?

It might not happen in Washington, but we could be seeing this trend grow in the states. To wit: there also was talk of a bipartisan agreement regarding the Washington state speakership, but that plan ultimately did not come to fruition.

Now, what legislation might these states, and others, consider this year?

Fintech Firms Must Keep An Eye On State Policy

According to the state legislative team at Lexis Nexis, along with health care- and housing-related legislation, labor and employment policy, and bills related to energy and the environment, financial services and fintech-related matters are high on state lawmakers’ priority lists.

As it has in recent years, data privacy will be among the issues getting significant attention.

According to Lexis Nexis’ research team, at least 35 states considered legislation dealing with consumer data privacy in 2022, including 25 states that considered comprehensive measures that would “generally regulate the collection, use and disclosure of personal information by businesses and specify consumer rights for collected data, such as the right to access, correct and delete personal information gathered by businesses.”

Only two states got that legislation to the finish line, which means there is still a lot of work that can happen in legislatures around the country this year. Indeed, Lexis Nexis said, “[B]arring the passage of federal data privacy legislation, the pattern in the states may continue to hold.”

Pluribus News editor Reid Wilson, who tracks state legislative activity, agreed. He recently told National Public Radio, “[H]ere’s a good example of gridlock in D.C. forcing state action. Congress isn’t doing anything to regulate technology companies. So the states are really stepping into the void. … Democratic states have tried to force social media companies to cut down on hate speech. Republican states have tried to bar those companies from applying what they call censorship … But there is at least some low-hanging fruit that I think we’ll see in both red states and blue states.”

According to the law firm Husch Blackwell, eight states already have broad consumer data privacy bills on the docket: Indiana, Iowa, Kentucky, Mississippi, New York, Oklahoma, Oregon, and Tennessee. Three bills in New Jersey also rolled over from the last legislative session since there were no state legislative elections there last year.

If lawmakers cannot get omnibus data privacy legislation enacted, look for them to pass more narrow legislation like AB 2273 in California. This bill is the type of “low-hanging fruit” Wilson meant in the statement above. AB 2273 would at least require businesses to make sure online services, products, or features that are likely to be accessed by children meet certain data privacy requirements.

In December, Pluribus News reported that digital asset legislation also would be a big focus of state legislatures in 2023. In fact, it did not take long after the collapse of cryptocurrency exchange FTX for lawmakers in big states like New York and California to produce “legislation for the 2023 session aimed at better protecting consumers from the nascent industry. Lawmakers elsewhere are watching closely to see what Congress does, and weighing whether their state rules need beefing up.”

According to the government relations and bill tracking firm MultiState, during the 2021-2022 legislative year, 37 states introduced cryptocurrency legislation. Some of these efforts were successful:

  • Wyoming amended state law regulating decentralized autonomous organizations;

  • Washington and West Virginia updated unclaimed property laws to include digital currencies; and

  • Connecticut has required the Board of Regents of Higher Education to develop instruction programs to help small businesses in electronic commerce and digital currencies.

To be sure: there is enough bipartisan support for strengthening digital asset oversight in the U.S. Senate and House that, no matter what states do, we could see actually see meaningful action at the federal level. Indeed, House Financial Services Committee Chairman Patrick McHenry (R-N.C.) has said he wants movement on this issue in the first half of 2023 – one of the few areas on which both he and committee Ranking Member Maxine Waters (D-Calif.) agree.

As part of a reorganization of his committee, Chair McHenry also established s Subcommittee on Digital Assets, Financial Technology, and Inclusion. Rep. French Hill (R-Ark.) will chair that panel in addition to serving as vice chair of the full committee. As Decrypt reported, Rep. Hill’s subcommittee will seek to provide “rules of the road” for federal regulators who are overseeing the digital asset ecosystem.

Cybersecurity is another area where states will focus. According to Lexis Nexis, that is because, at last count, the U.S. Treasury Department’s Financial Crimes Enforcement Network reported that it had received 1,489 ransomware-related filings totaling almost $1.2 billion from U.S. financial institutions in 2021, a 188 percent increase from the $416 million total for 2020.

State lawmakers are closest to the consumers who are affected by these breaches and they want action. Now. At least 40 states considered, and 24 enacted, legislation dealing substantively with cybersecurity in 2022, Lexis Nexis said. We can expect more in 2023.

State legislatures also may consider tax legislation aimed the technology industry this year. As MultiState has reported, these proposals have taken several forms, including taxes on digital advertising and taxes on the collection or sale of consumer data. The issue is bipartisan. As MultiState said, while these policies have been challenged in court — and Maryland’s law digital advertising tax law failed to pass judicial muster — “lawmakers on both the left and right have both considered these novel policies.” The accounting firm RSM agreed these types of legislation could see the light of day again in 2023.

According to RSM, digital asset tax issues also will be on the docket. RSM reported the Multistate Tax Commission, a governmental organization, has begun a project to make uniformity recommendations to the states on the taxation of digital products, including NFTs.

Bored with Washington inertia? Look to the states for some excitement – and legislating – this year.

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