Welcome to the January edition of A Capitol View

SMI closed out an impressive year advocating for federal appropriations, assisting clients in partnering with government agencies, and advancing a series of national priorities in defense, energy, life sciences, and other sectors.

We’re geared up for a politically dynamic 2024 that also presents new opportunities to work with both parties in Congress and the Biden administration to lock in investments and champion policy changes that further fuel domestic manufacturing and spur technology innovation.

First things late: All eyes are retrained on Congress, which is back in session and facing a pair of deadlines to avoid a government shutdown: Jan. 19, when numerous federal agencies will run out of money, and Feb. 2, when the Pentagon will run dry.

House and Senate leaders have reached a deal on a $1.7 trillion topline for FY 2024 appropriations, including $886 billion for national defense and $773 billion for non-defense programs. Bipartisan talks are also underway to break an impasse over border security that has been holding up the Biden administration’s $106 billion supplemental spending package for Ukraine, Israel and other pressing national security needs.

We’re closely tracking how the delayed appropriations for the fiscal year that began Oct. 1 will shake out and what they will mean for clients — particularly the potential, should Congress fail to ink a final deal, of a long-term continuing resolution that locks in current funding levels or requires cuts under the Fiscal Responsibility Act that was enacted last year.

But we’re also already working diligently on the next funding cycle for FY 2025 that begins in earnest this spring, in order to maximize outcomes for our robust appropriations and policy agenda.

Read up: Frequently Asked Questions Related to Fiscal Year 2024 Discretionary Spending Limits, via White House Office of Management and Budget.

SMI SPOTLIGHT

GROWTH SPURT: SMI’s bipartisan bench is deepening as we continue to expand our lobbying, federal marketing, and strategic communications portfolios.

This month we’re welcoming as a director Celia Morté, a former Air Force cyber operations officer who most recently served as national security adviser for Sen. John Kennedy (LA), where she supported his work on the Appropriations Committee and advised on foreign affairs and trade policy.

Celia was previously military legislative assistant to Sen. Kevin Cramer (ND), a member of the Armed Services Committee and the Space Force Caucus.

“Celia brings a breadth of knowledge and experience, both in uniform and as a civil servant, to help maximize our ability to deliver for clients and bolster national objectives for technology development, economic growth, and security,” said SMI CEO Bill McCann.

“I’m thrilled to be joining such an impressive team,” Celia said. “I look forward to assisting clients in successfully navigating the appropriations process and in accomplishing their federal objectives.”

Celia earned a BA in History from the University of Portland and an MA in Humanities from the American Military University. She was also a Space Policy Fellow at the Nonproliferation Policy Education Center.

Support system: SMI has also brought aboard three new policy analysts to support the firm’s work.

Ben McNutt interned for House Democratic Leader Hakeem Jeffries and Senate Majority Leader Chuck Schumer, where he supported key policy areas for SMI clients, including battery supply chains and the CHIPS Act. He also served as support team leader for AmeriCorps. He graduated from American University with a B.A. in Interdisciplinary Studies: Communication, Legal Institutions, Economics, and Government (CLEG) and a B.A. in Political Science.

Laura “LB” Fullerton was an intern for the Korea Economic Institute of America and the U.S. Army’s Military Advisor Training Academy, where she supported policy research and drafted reports to support senior leaders. She holds a BA in International Studies from Auburn University and an MA in Asian Studies from George Washington University.

Dylan Keating interned for the Signal Group, a political advisory group specializing in national security policy and the defense industry, and Direct Persuasion, a digital political strategy and marketing group. Dylan has experience researching and creating analyses on defense policy issues and the CHIPS Act. He earned BA degrees in Chinese and Political Science from Villanova University.

Meanwhile, SMI has promoted Senior Analyst Camryn Anderson, who has supported the team through two appropriations cycles and honed best practices on behalf of clients with her experience and policy depth.

“2024 is going to be another busy year at SMI,” said McCann. “We expect to have a number of new folks join our team and have some exciting announcements coming in the next few weeks.”

ENERGY

NEW RULES: SMI is engaged in assessing the impact of new guidance from the IRS and Department of Energy aimed at curbing the influence of Chinese, Russian, Iranian, and North Korean entities on the U.S. battery supply chain.

The Foreign Entities of Concern (FEOC) provisions for clean vehicle tax credits and battery processing and manufacturing grants “were well thought out and should prevent many of the workarounds, such as joint ventures with Chinese companies, said SMI VP Drew Ronnenberg.

‘Chilling effect’: But he said the proposed “transition rule” allowing Chinese-produced electrolyte salts, electrolyte additives, and binders to qualify until 2027 “contradicts the clear intent” of the law.

“If this transition rule is not eliminated in the final rule,” Drew warned, “it will have a chilling effect on the domestic production of these key battery components.”

The new guidelines have also raised the ire of Sen. Joe Manchin (WV), who contends the IRS guidance “makes it easier for Foreign Entities of Concern (FEOC) to take advantage of the 30D tax credit.”

The transition rule in particular “enables electric vehicles that contain critical minerals or battery components sourced from foreign entities of concern placed in service over the next three years to qualify for the tax credit in spite of the statutory prohibitions,” Manchin, who is seeking a review from the Government Accountability Office, complained.

POWERING UP: SMI client NanoGraf Corporation opened a new plant in Chicago to produce longer lasting batteries that power military equipment, consumer electronics, electric vehicles, and medical devices.

The startup is using silicon oxide instead of graphite in Lithium-Ion batteries to keep pace with demand for more range, power, and cycling stability. China recently announced further export controls on graphite, raising concerns of a potential shortfall.

“One of the things we’re proud of is that we’re building a facility here, and our silicon partially replaces graphite,’’ said NanoGraf CEO Francis Wang. “So it kind of does ease some of these potential issues around materials like graphite that China might decide to hold back.’’

The 17,000- square foot facility, made possible with a $10 investment in government funding secured with the help of SMI’s energy storage team, is slated to produce enough for 24 million battery cells each year, about three quarters of which is destined for the U.S. military.

DEFENSE

DRIVING THE DEBATE: SMI client Physical Sciences, Inc. has emerged as a thought leader on how small businesses can transition cutting-edge defense technologies to the warfighter.

Congress will have to reauthorize the Small Business Innovation Research (SBIR) and related Small Business Technology Transfer (STTR) programs in less than two years and we expect lots of debate on how the programs fit into broader efforts to acquire new technologies more quickly.

PSI President and CEO Bill Marinelli participated in a panel discussion titled “Responding to the Requirement” at the National Defense Industrial Association’s Small Business Innovation Summit, along with Jennifer Greenwood, the SBIR/STTR program manager for the Navy’s Program Executive Office for Unmanned and Small Combatant.

Marinelli also published a commentary in the December issue of National Defense magazine outlining the unique role played by companies whose proposals have repeatedly been judged the most meritorious – and how they differ from venture capital-backed tech firms with fewer roots in the defense acquisition ecosystem.

MAKING THE GRADE: SMI client 6K scored a big win with the award of $23.4 million from the Defense Production Act Investment (DPAI) Program to dramatically expand its ability to convert scrap metal and other waste into higher grade metals.

The funding will allow 6K to increase its production capacity for titanium, niobium, nickel, and tungsten, which are used in alloys for aircraft, engine blades, rocket engines, radars, and many other military applications.

6K Additive’s proprietary upcycling processes rely on abundant domestic sources of metal feedstock, such as end-of-life components, machine shop waste, and scrap from manufacturing processes such as casting and forging.

“U.S. dependency on foreign sources for specialty metals presents a significant risk to national security,” said Laura Taylor-Kale, PhD, assistant secretary of defense for industrial base policy. “6K’s products will feed supply chains that form the basis of our military’s core warfighting capabilities.”

TECHNOLOGY

MORE CHIPS ON THE TABLE: The Biden administration has taken a series of new steps to implement the CHIPS and Science Act.

The Defense Department put out a call for projects under Microelectronics Commons effort and the Commerce Department agreed to invest $162 million in Microchip Technology Inc, to onshore its semiconductor supply chain in Colorado and Oregon.

The Pentagon call for projects “is the next step in our effort to bridge the valley of death from ‘lab-to-fab,’” said Deputy Under Secretary of Defense for Research and Engineering avid Honey. “With participation from companies and universities across the nation, these projects will catalyze domestic production of advanced microelectronics that are vital to America’s national defense and economic competitiveness.”

Triple play: The Commerce Department agreement calls for $90 million to modernize and expand a fabrication facility in Colorado Springs and $72 million for a facility in Gresham, Oregon – nearly tripling the output of semiconductors at those locations.

Commerce Secretary Gina Raimondo said the investment create “a more secure defense industrial base, lower prices for Americans, and over 700 jobs across Colorado and Oregon.”

INFLUENCE GAME: SMI client University of Arkansas at Little Rock secured $5 million from the Army for its Collaboration for Social Media and Online Behavioral Studies Research Center to help devise ways to counter propaganda fueled by artificial intelligence or other advanced influence tactics.

“Narratives on social media could be easily weaponized and propagated at frighteningly fast speeds,” said Nitin Agarwal, COSMOS’ founding director. “Such insidious threats that attempt to influence beliefs and behaviors need to be considered as modern weapons of cognitive hijacking. We need to develop scientific approaches to combat these emerging threats in a global context, equip our warfighters with these capabilities, and strengthen community resiliency.”

A key supporter of the research has been the Office of U.S. Senator John Boozman. “The evolving nature of social media and the changing tactics our adversaries use to spread misinformation requires us to develop a strategy to respond,” Boozman said. “Dr. Agarwal’s research will help create critical tools to combat bad actors on these platforms.”

MANUFACTURING

SPRINGING FORWARD: The United States Footwear Manufacturers Association and its member companies and universities will gather in Washington on March 11th and 12th to educate members of Congress on the critical role of the footwear supply chain and advocate for our policy priorities.

“This meeting offers a unique opportunity for our members to directly interact with decision-makers in the nation’s capital, discussing critical issues impacting the domestic footwear industry,” said SMI CEO and USMFA executive director McCann. “We will advocate for the additional funding to support military footwear manufacturing, trade and manufacturing policies.”

USFMA will be building on its aggressive agenda, including pursuing appropriations from Congress and leading industry-wide campaigns to grow domestic footwear manufacturing through fair trade, strong manufacturing policies, and programs that strengthen the supplier base.

Military matters: The recently passed National Defense Authorization Act includes a requirement for the secretary of defense “to brief on Berry Amendment-compliant uniformed clothing, including footwear” by March 1.

USFMA is seeking an assessment of current policy that allows military servicemembers to wear foreign-made boots on duty – a major loophole to the law that mandated U.S.-made footwear.

USFMA is planning a full-scale push this year to ensure that the military services require Berry Amendment-compliant boots and dress shoes for servicemembers on duty.

USFMA is also advocating for the Import and Security Fairness Act to prevent businesses from exploiting import loopholes – the de minimis threshold – that could harm domestic industries. We’re also tracking The Americas Act intended to increase supply chain investments in the Western Hemisphere to ensure it doesn’t harm domestic manufacturing.

R&D tax credit: The association has also joined a broad coalition of businesses and trade associations calling on Congress to pass The American Innovation and R&D Competitiveness Act that would restore the ability to deduct research and development expenses in the year they are incurred.

“We look forward to welcoming our members to Washington in March and to another successful year working together,” said McCann.

SMI IN THE NEWS 

Playbook: 4 reasons to be wary about Hill dealmaking, via POLITICO.