The Nation’s economic outlook, the impact of the health care reform debate, and the prospects for change in the Congressional composition in the mid-term elections look to be the key drivers that will shape the 2010 political and policy landscape in the months leading up to November’s elections. However, the recent and renewed focus on security concerns in the wake of the Christmas Day airline terrorism attempt as well shifting political dynamics created by the retirements of a number of senior Congressional incumbents in both the House and Senate are reminders that the unexpected always retains the potential to fundamentally reshape the 2010 policy agenda, and will likely impact the Congressional timetable in the early months of the new year.

As 2009 drew to a close, Congress made substantial progress towards the completion of its work on two major pieces of legislation — an overhaul of key aspects of the health care system and substantial reform of the regulation of the financial services system. After a summer of town hall meetings, nearly ten months of legislative hearings and negotiations, and three weeks of Senate debate, Congress is poised to complete an agreement on a final package of health insurance market reforms in the next few weeks, though House and Senate leaders must still reconcile a number of potentially challenging issues .

Throughout 2009 the U.S. House of Representatives and U.S. Senate each worked on legislation intended to remedy perceived deficiencies in the current financial services regulatory system and to establish new regulatory authorities with the intention of preventing a future crisis. The House passed its version of comprehensive financial regulatory reform legislation in December, while negotiations continued in the Senate Banking Committee without formal legislation emerging prior to the recess. Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) signaled that they are making substantial headway in bridging their differences and producing a bipartisan bill, a prospect bolstered by Chairman Dodd’s decision to retire in 2010. Such a bill is expected to be offered in January and the Senate Banking Committee could consider it as early as the last week in January.

This unfinished business from 2009 and the Administration’s ambitious policy agenda for 2010 will force Members of Congress to make difficult decisions in early 2010 before focus shifts to the November mid-term elections. Over the objections of most Republicans and several moderate Democrats, the Obama Administration and Congressional leaders have indicated their continued support for efforts to undertake major initiatives to re-calibrate energy and environmental policy, substantially and fundamentally reform the tax code, and achieve comprehensive immigration reform. However, it will be extremely difficult for the Congress to address all of these large objectives in the truncated period before the mid-term elections dominate the policy landscape.

A host of other developments are likely to have their time on stage in this election year as well, including continued populist frustration with large financial institutions that has generated bipartisan efforts to reinstate Glass-Steagall and restrict the activities of investment banks and others in the financial services industry. The tax reform debate, as well as the Administration’s own growing antitrust enforcement activities, will both intersect with this issue, creating the potential for significant unease within the financial sector. The growing chorus of concern over continued job losses and the potential for a second “jobless recovery” in two decades will also force Congress and the Administration to take action early in the year on economic issues before facing voters in November.

The November mid-term elections will play a pivotal role in shaping the policy landscape for 2010 and beyond. The party that controls the White House traditionally loses Congressional seats in mid-term elections. Without President Obama at the top of the ticket, turnout is likely to be lower than in 2008, and most observers predict that the Democrats will not buck the historic trend in 2010. Other important factors affecting the upcoming mid-term races include continued economic insecurity, mounting deficits, and the decline in President Obama’s approval ratings. Depending upon the final disposition of the bill, health care reform legislation will also play a prominent role in the mid-term elections. Should a health care bill become law, both parties will seek to use the outcome as leverage with voters.

With the potential for additional House Members to announce their retirement, or even to switch parties, the current consensus among political observers is that House Democrats face the potential for a narrower majority. And there will likely be an altered political makeup within the Democratic Caucus, with the relative strength among the Blue Dogs, New Dems, Progressives, the Congressional Hispanic Caucus, and the Congressional Black Caucus impacted by the election results. In the Senate, voter concern about national Democratic policies could result in difficult re-election campaigns for several Senate stalwarts, including Majority Leader Harry Reid (D-NV), , Sen. Blanche Lincoln (D-AR), and Sen. Arlen Specter (D-PA). The retirements of Sens. Byron Dorgan (D-ND) and Chris Dodd (D-CT), both of whom would have faced difficult campaigns, further illustrate the electoral volatility that will shape policy in 2010. Given the extraordinary powers possessed by each Senator to slow down consideration of legislation through the use of the filibuster and the need for 60 votes to end filibusters, any change in the ideological composition of the Senate could yield major changes to how the Senate operates.

The economy will continue to dominate the policy landscape for states and municipalities in 2010. State and municipal budgets bear the brunt of economic challenges, and this impact is especially acute with elevated levels of unemployment and home foreclosures. These challenges, along with mounting budget deficits, may be compounded by the potential for new unfunded federal mandates, including those included in health care reform legislation. While the Recovery Act will continue to support certain state and local government functions, much of the Recovery Act funding expires over the coming year. To address the challenges faced by state and local governments, the Obama Administration recently indicated that it would intensify its focus on preventing avoidable foreclosures and spurring small business growth.

As the range and nature of potential opportunities and challenges for 2010 continues to expand, development and execution of a coordinated strategy for engagement in the legislative and regulatory process is increasingly essential. To aid in this process, we have prepared our annual calendar of key dates in 2010 for Congress, state legislatures, elections, and federal political compliance reporting.