MIDTERMS IN THE AGE OF DISRUPTION

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1 Bruce July 19, 2018 Q3 18 Washington Update MIDTERMS IN THE AGE OF DISRUPTION What to Expect in the 2018 Elections

2 CONTEXT: CHANGE ELECTIONS ARE THE NEW NORMAL It s Not Unique to America WRONG TRACK & RIGHT TRACK Most Elections This Century Flipped House, Senate &/or WH

CONTENTS CASE FOR THE GOP Slides 4-9 Economy, Electorate, Maps, Unity CASE FOR THE DEMS. Slides 10-15 History, Enthusiasm, Recruiting, Special Elections BIGGEST WILDCARDS.

3 CONTENTS CASE FOR THE GOP Slides 4-9 Economy, Electorate, Maps, Unity CASE FOR THE DEMS. Slides History, Enthusiasm, Recruiting, Special Elections BIGGEST WILDCARDS... Slides Money, Markets, Madmen, Manufactured Crises KEY QUESTIONS Slides GOP Motivation, Dem Disunity, SCOTUS WHAT COMES NEXT... Slides Agenda, Future of Dems & GOP, 2019 Issues 3

4 THE CASE FOR THE GOP 4

5 STRONG ECONOMY U.S. Economy Strong, Voters Confident Q2 GDP forecast: 3.8% 4.0% unemployment rate (lowest in midterm election year since 1966) All-time high construction spending ($1.3B in May 2018) Sources: Atlanta Fed GDPNow; BLS; AGC; NFIB; Gallup; 5

6 MIDTERM ELECTORATES FAVOR GOP Midterm Voters Typically Older, Whiter As a Share of the Electorate Year Olds African Americans Hispanics 17% 15% 16% MIDTERM MIDTERM MIDTERM 17.1% 15.4% Share of Total Electorate 13% 11% 9% 11.1% 10.0% 11.2% 12.3% 11.3% 11.4% 13.2% 8.3% 11.9% 10% 7% 5.9% 5.6% 7.3% 6.8% 7% 5% Source: Election Project 6

7 SENATE: DEMS ON DEFENSE Dems Defending 10 Trump States; GOP Defending 1 Clinton State WA OR MT ND MN ME ID WY SD WI MI NY CA NV UT CO NE KS IA MO IL IN OH KY WV PA VA TRUMP 16 DEMS DEFENDING +42 MANCHIN (WV) AK AZ NM TX OK AR LA MS TN AL GA NC SC +36 HEITKAMP (ND) +20 TESTER (MT) +19 DONNELLY (IN) FL +18 McCASKILL (MO) +8 BROWN (OH) +1 NELSON (FL) TRUMP 16 GOP DEFENDING +26 OPEN (TN) +3.5 OPEN (AZ) +0.8 BALDWIN (WI) +0.7 CASEY (PA) +0.2 STABENOW (MI) -2.4 HELLER (NV) 7

8 HOUSE: TOO GERRYMANDERED TO FAIL? Fewer Easy Targets For Democrats in 2018 Wave Year Won by Other Party s Presidential Candidate Rated Toss Up or Worse (by Cook Political Report) Seats Lost ?? Source: David Wasserman, Cook Political Report 8

9 HISTORIC PARTY UNITY BEHIND PRESIDENT 100% 90% 80% 96% It s Trump s Party (He Can Tweet If He Wants To) 88% 86% 84% 84% 84% 83% 81% 79% 77% 70% 60% Own Party Approval ~July 4 of Midterm Year 67% 61% 52% 50% 40% 30% 20% 10% 0% Bush43 Trump LBJ** JFK Ike Nixon Bush41 Obama Reagan Ford** Clinton Truman** Carter Source: Gallup; **VPs who became President after death / resignation 9

10 THE CASE FOR THE DEMS 10

11 HISTORY FAVORS THE INSURGENT PARTY Presidents Usually Lose Seats in First Midterm Elections YEAR NET APPROVAL HOUSE SENATE GOVs ST. LEG. SEATS JFK (1962) IKE (1954) GW BUSH (2002) NIXON (1970) GHWBUSH (1990) CARTER (1978) LBJ (1966) CLINTON (1994) OBAMA (2010) REAGAN (1982) TRUMP (2018) -10 TRUMAN (1946) Lost Majority Sources: Gallup; Sabato; NCSL; RCP (Trump) 11

12 UNPRECEDENTED RECRUITING SUCCESS Record Number of Democratic House Candidates GOP DEM GOP waves DEM wave Source: Center for Responsive Politics (based on FEC reports) 12

13 Sources: Generic (WSJ/NBC), Pew (Enthusiasm), Gallup (Congress, Resistance,& Optimism) DEM Wave Year GOP Wave Year No Wave 2018 HOUSE: MANY WAVE INDICATORS FLASHING WAVE LESS LIKELY WAVE MORE LIKELY RESISTANCE INTENSITY (Approval of President by out party) WAVE LESS LIKELY GENERIC BALLOT (Which party do you prefer to control Congress, minority-majority) CONGRESSIONAL JOB APPROVAL (Do you approve of the Job Congress is doing) OPTIMISM GAP (Are you satisfied with direction of the country minus dissatisfied) WAVE MORE LIKELY ENTHUSIASM GAP (Difference in more enthusiastic than usual to vote between parties)

14 DEMS OUT-PERFORMED IN SPECIAL ELECTIONS Dem Candidates Beat the Spread Every Election Source: FiveThirtyEight 14

15 SENATE: OUT PARTIES WIN MORE MIDTERMS Over the past 10 midterms (333 Senate races) Heller PARTY HOLDING WHITE HOUSE 84.0% 80.0% 68.8% INCUMBENT SENATORS WINNING % PARTY OUT OF WHITE HOUSE State voted for POTUS by 10%+ 90.7% State voted for POTUS by 0-10% 100% State voted against POTUS by 0-10% 90.6% Donnelly Heitkamp Manchin McCaskill Tester Baldwin Brown Casey Nelson Stabenow TN Open AZ Open PARTY HOLDING WHITE HOUSE 80.0% 30.8% 20.0% OPEN SEATS HOLD % PARTY OUT OF WHITE HOUSE State voted for POTUS by 10%+ 71.4% State voted for POTUS by 0-10% 100% State voted against POTUS 0-10% 75.0% Sources: Research by Jake Brennan, MCR&T 15

16 BIGGEST WILDCARDS 16

17 MONEY Outside Spending Crushing Midterm Records, But Who Benefits? 2018 $198.3 Outside Group Spending by Election Cycle (millions) $5.5 $2.2 $43.7 $124.2 There s More Where That Came From (Announced spending on 2018 elections) 1998 $ $1.6 KOCH $400M BLOOMBERG $80M ADELSON $30M STEYER $30M UIHLEIN $25M Sources: Center for Responsive Politics; various newspapers 17

MARKETS Will Rising Costs Anger Consumers or Investors?

likely. Higher prices, fewer jobs likely.

42%) & kill 325,000+ jobs over time (Tax Foundation). Oil prices up 22.

Avg monthly health insurance premium up 27% this year for coverage purchased through ACA exchanges

18 MARKETS Will Rising Costs Anger Consumers or Investors? Trade war already imposing $150B in bilateral tariffs, $550B more threatened by with retaliation likely. Higher prices, fewer jobs likely. Implemented & threatened tariffs & retaliation projected to reduce GDP by ~$105B (0.42%) & kill 325,000+ jobs over time (Tax Foundation). Oil prices up 22.5% so far in 2018, near 3 year high. Morgan Stanley forecasts 15% further increase this year. Avg monthly health insurance premium up 27% this year for coverage purchased through ACA exchanges (CMS). One month before election new (likely higher) rates for 2019 come out (KFF) Consumer inflation hit 6 year high in June. Federal Reserve expected to raise interest rates 4x in Sources: US Chamber; Tax Fdn; Morgan Stanley (Oil YTD; CMS; KFF via NBC; CPI; Fed. 18

19 MADMEN Will Hacking, Terrorism, Diplomacy or War Dominate Discussion? Sources: AP (Putin, licensed); Wikimedia Commons (KJU; Rouhani) 19

20 MANUFACTURED CRISES Opportunities for Major Disruption Remain 20

21 KEY QUESTIONS 21

22 WILL GOP REMAIN UNIFIED & MOTIVATED? EVANGELICAL CONSERVATIVES All 3 GOP Factions Getting What They Want So Far PRO-BUSINESS ESTABLISHMENT ANTI-ELITE POPULISTS JUDGES 2 Supreme Court 22 Appeals Court DEREGULATION (Economically-significant regulations by year) Sources: Wikipedia (Judges); WSJ (regs) 22

DEMANDING CONFRONTATION Do you think the Democratic Party has a clear plan for

DEM VOTERS Yes: 49% No: 42% 33 Democratic candidates in 2018 publicly oppose

23 WILL DISUNITY DISRUPT DEMS? Herbal Tea Party Pushing Dems Left QUESTIONING STRATEGY CHALLENGING LEADERS DEMANDING CONFRONTATION Do you think the Democratic Party has a clear plan for the country? DEM VOTERS Yes: 49% No: 42% 33 Democratic candidates in 2018 publicly oppose Pelosi for Speaker (12 incumbents) (GOP voters on GOP: Yes 65%, No 29%) CA Dems endorse De Leon over Feinstein NY Dems picked Ocasio-Cortez over Crowley Sources: Fox News poll (Plan); Mia Luckett (Pelosi); Pew 23

WHO IS HELPED BY THE SUPREME COURT FIGHT? Both Sides Can Benefit, But Likely Net Plus for GOP HOW IT HELPS THE GOP HOW IT HELPS DEMS 1. Unifies & motivates all 3 factions of the GOP base. 2.

24 WHO IS HELPED BY THE SUPREME COURT FIGHT? Both Sides Can Benefit, But Likely Net Plus for GOP HOW IT HELPS THE GOP HOW IT HELPS DEMS 1. Unifies & motivates all 3 factions of the GOP base. 2. Diverts liberal resources into pressuring red state Dem Senators. 3. Focuses campaigns on substantive issues, not Trump. 1. Energizes liberals to give / spend more money. 2. Motivates millennials and minorities to register & vote. 3. Maintains / expands historic gender gap into election season. 24

25 WHAT COMES NEXT? 25

THERE IS STILL PLENTY OF WORK TO DO IN 2018 10 More Things Congress Must Do / Attempt This Year 1. Funding government or shutdown 9/30 2. Kavanaugh confirmation & other judges & nominees 3.

26 THERE IS STILL PLENTY OF WORK TO DO IN More Things Congress Must Do / Attempt This Year 1. Funding government or shutdown 9/30 2. Kavanaugh confirmation & other judges & nominees 3. Nat l Flood Insurance Program (expires 7/31) 4. Nat l Defense Authorization Act (expires 12/31) 5. Farm Bill (expires 9/30) 6. FAA Reauthorization (expires 9/30) 7. Tax cuts 2.0, extenders & corrections 8. Intelligence Reauthorization 9. Opioid Crisis legislation 10. Pandemic preparedness, GME for children s hospitals, ADUFA (w/ cosmetics reform maybe) (expires 9/30) 26

27 DISRUPTORS REMAIN IN CHARGE We re 37% Through President Trump s First Term 915 Days Remaining

THE NEXT GOP: MUCH LESS EXPERIENCE Retiring: 1/4 th Leaders, 1/3 rd Experience, 43% House GOP Chairmen Leadership Years Experience Committee Chairs 45 40 25% retiring 31.7% retiring 42.

28 THE NEXT GOP: MUCH LESS EXPERIENCE Retiring: 1/4 th Leaders, 1/3 rd Experience, 43% House GOP Chairmen Leadership Years Experience Committee Chairs % retiring 31.7% retiring 42.9% retiring House Republican Retirements ( ) Sources: Brookings; MCR&T analysis 28

29 THE NEXT DEMOCRATIC PARTY: HISTORIC DIVERSITY 100.0% 90.0% 80.0% 70.0% 94.9% 93.4% White Men as % of House Democrats White Men as % of House Republicans 86.8% 60.0% 50.0% 40.0% 39.7% 30.0% 32.7% 20.0% 10.0% 4.0% Women as % of House Democrats 0.0% Sources: Legistorm (Members) & Pew (USA) 29

REGARDLESS OF WHO WINS, 2019 INCLUDES Health Care Issues Techlash

Medicare & Medicaid Sustainability Opioid Epidemic Emerging tech security

Fake news, hate speech, election interference & censorship bias Platform

30 REGARDLESS OF WHO WINS, 2019 INCLUDES Health Care Issues Techlash Prescription Drug Pricing Privacy & data security Future of the ACA Medicare & Medicaid Sustainability Opioid Epidemic Emerging tech security & ethics (AI, IOT, cyber, CRISPR) Market competition & data antitrust Fake news, hate speech, election interference & censorship bias Platform liability & black markets Phone / social media addiction USG / law enforcement cooperation 30

31 To be added to future distribution: is one of the nation s most innovative government relations firms, offering strategic solutions to companies, trade associations, non-profits, and entrepreneurs that help them succeed in Washington.

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