CRS Reports

Financial Innovation: Digital Assets and Initial Coin Offerings

Oct 17, 2018

Are There Any Systemically Important Nonbanks?

During the 2008 financial crisis, problems at AIG, Bear Stearns, and Lehman Brothers led to broader financial instability or government “bailouts” in order to prevent instability. At the time, these firms were nonbank financial institutions and not generally subject to effective safety and soundness regulation on a consolidated basis. The Dodd Frank Act (P.L. 111-203) provided the Financial Stability Oversight Council (FSOC) with the authority to designate nonbanks for enhanced prudential oversight by the Federal Reserve as systemically important financial institutions (SIFIs). Since enactment, FSOC has designated three insurers (AIG, MetLife, and Prudential) and one other firm (GE Capital). Subsequently, all four designations have been removed, three by FSOC and one (MetLife) through a successful lawsuit. Most recently, Prudential was de-designated on October 17, 2018. Proponents believe that designation could make it less likely that a large nonbank would experience a failure that destabilized the financial system. Opponents question whether any nonbank poses systemic risk, and if any does, whether institution-based regulation is the best way to address that risk. FSOC Designations and De-Designations The Dodd-Frank Act bases SIFI designations on whether the firm’s “material distress” or “the nature, scope, size, scale, concentration, interconnectedness, or mix of (its) activities” could pose a threat to financial stability. In deciding whether to designate a firm, FSOC primarily considers (1) if the firm’s distress would lead to financial instability for other firms or markets; (2) the extent to which the firm is already regulated; and (3) the firm’s complexity, opacity, or difficulty to resolve in the event of its failure. (For more information, see CRS Report R45162, Regulatory Reform 10 Years After the Financial Crisis: Systemic Risk Regulation of Non-Bank Financial Institutions.) FSOC annually reevaluates whether designated firms remain systemically important. FSOC de-designated AIG and GE Capital partly because of their reduction in size, through significant divestments and reductions in certain activities. AIG’s total assets fell from $1,048 billion in 2007 to $498 billion in 2016 and GE Capital divested $272 billion in assets from 2012 to 2016. (The large majority of the AIG restructuring occurred prior to its initial SIFI designation, however.) Although it was ultimately a court case that resulted in its de-designation, MetLife also undertook a substantial restructuring after its designation, spinning off lines of business and approximately $220 billion in assets to a new firm in August 2017. MetLife is, however, still the second largest insurer in the United States. Prudential, currently the largest U.S. insurer, has not undertaken any large-scale restructuring since SIFI designation—in fact, it has gotten larger. In its de-designation, FSOC found that Prudential has not significantly decreased its total market exposure, investment portfolio, market share, or resolvability. However, FSOC noted that Prudential had reduced its leverage and counterparty exposures to the largest banks, and that there had been changes to its state insurance regulation. Do Nonbanks Pose Systemic Risk? If systemic risk is mainly a function of size (i.e., “too big to fail”), then a failure to designate any large nonbank could increase the likelihood of financial instability. Figure 1 shows large financial firms based on asset size. P.L. 115-174 raised the asset threshold for automatically subjecting banks to enhanced prudential standards to $250 billion. For comparison, 10 insurers (including the three previously designated) and three other nonbanks have more than $250 billion in assets. The largest insurers (Prudential and MetLife) are comparable in size to banks such as Goldman Sachs and Morgan Stanley. However, differences in the nature of banking and other financial activities may mean that banks above $250 billion pose more systemic risk than nonbanks of the same size. For example, deposits are an important source of funding for most banks, and deposits can be withdrawn on demand. If enough deposits are withdrawn simultaneously, even strong banks would face a liquidity crisis. Insurers offer far fewer products where funds can be withdrawn on demand. Figure 1. Financial Firms With Over $250 Billion in Assets (billions of $, latest annual) / Source: Federal Reserve, S&P Capital IQ. Notes: BHC=Bank Holding Company, FBO=Foreign Banking Organization. For FBOs, includes U.S. assets only. Berkshire Hathaway includes companies engaged in financial and nonfinancial activities. Nevertheless, both large banks and nonbanks undertake other activities that could pose systemic risk. For example, both can participate in short-term debt markets where access to funding could quickly dry up in a panic, causing a liquidity crisis for the firm. Both can hold large portfolios of securities that, if sold quickly under duress (in a “fire sale”), could potentially push other firms or markets into crisis. Both typically have complex, multinational corporate structures that make their resolution complicated. As noted above, one factor in SIFI designation is the firm’s existing regulation. Insurers are regulated for safety and soundness at the state level, although there is no automatic enhanced prudential regime for large insurers analogous to that for large banks. AIG’s problems during the crisis raised concerns that state-level regulation could not adequately mitigate systemic risk posed by an insurer’s noninsurance activities (such as securities lending and credit default swaps) in the future. State regulators implemented changes after the financial crisis that attempted to address such issues, although these changes have not been tested by a crisis. Large investment firms such as Lehman Brothers and Bear Stearns posed systemic risk in the crisis, but today, all large investment firms are parts of bank holding companies or foreign banks and therefore already subject to enhanced regulation. There are government sponsored enterprises with more than $250 billion in assets that are not designated, but are regulated for safety and soundness by the Federal Housing Finance Agency (one of the three factors for designation). No asset managers or lending companies own over $250 billion in assets, but some asset managers that are not part of bank holding companies manage trillions of dollars in customer assets. Losses on assets under management, in isolation, do not pose risk to the firm because they would be borne by customers. Nevertheless, a (controversial) 2013 report by the Office of Financial Research detailed the ways that large asset managers might pose systemic risk.

Oct 17, 2018

FY2019 National Defense Authorization Act: Selected Military Personnel Issues

Each year, the National Defense Authorization Act (NDAA) provides authorization of appropriations for a range of Department of Defense (DOD) and national security programs and related activities. New or clarified defense policies, organizational reform, and directed reports to Congress are often included. For FY2019, the John S. McCain NDAA (H.R. 5515) contains several high-profile military personnel issues. Some are required annual authorizations, such as end-strengths; some are updates or modifications to existing programs; and some changes in response to problems identified in certain military personnel programs. In this year’s NDAA, Congress authorized end-strengths identical to the Administration’s FY2019 budget proposal, which are slightly higher than in FY2018. The authorized active duty end-strength increased by 1% to 1,338,100. The authorized Selected Reserves end-strength increased by <1% to 824,700. With regards to military pay, a 2.6% increase will take effect in calendar year 2019. Congress considered the increase as requested by the Administration; however, an authorization was not required since 37 U.S.C. §1009 provides for automatic annual increases in basic pay that is indexed to increases in the Employment Cost Index. Congress also directed modifications to several existing programs, including development of criteria for internment at Arlington National Cemetery, as well as a $30 million authorization to expand the cemetery; clarified military health system reform requirements outlined in 10 U.S.C. §1073c and revised the implementation date from October 1, 2018 to September 30, 2021; expanded eligibility for TRICARE beneficiaries to access the Federal Dental and Vision Insurance Program (FEDVIP); extended eligibility for commissary and morale, welfare, and recreation (MWR) privileges to certain veterans and veterans’ caregivers, as well as a $1.26 billion authorization for commissary operations; expanded availability of Military OneSource services, enhanced Transition Assistance Program (TAP) counseling requirements, and broadened educational opportunities for servicemembers desiring professional credentials; and corrected technical calculations for automatic annual adjustments to the Special Survivor Indemnity Allowance. As part of the oversight process, additional provisions were incorporated to address selected congressional items of interest, such as added punitive articles on domestic violence in the Uniform Code of Military Justice and directed clarifying policy, support programs, and further study on services for victims of domestic violence and child abuse; stricter eligibility requirements for enlistees of the Military Accessions Vital to the National Interest (MAVNI) program; standardized processes for reporting and accountability, military justice and investigations, and victim services relating to military sexual assault and sexual harassment; increased transparency in Navy watchstander training programs and standards; and enhanced data-sharing between DOD and states to prevent opioid abuse or misuse.

Oct 16, 2018

Global Trends in Democracy: Background, U.S. Policy, and Issues for Congress

Oct 16, 2018

Central Valley Project: Issues and Legislation

The Central Valley Project (CVP), a federal water project owned and operated by the U.S. Bureau of Reclamation (Reclamation), is one of the world’s largest water supply projects. The CVP covers approximately 400 miles in California, from Redding to Bakersfield, and draws from two large river basins: the Sacramento and the San Joaquin. It is composed of 20 dams and reservoirs and numerous pieces of water storage and conveyance infrastructure. In an average year, the CVP delivers more than 7 million acre-feet of water to support irrigated agriculture, municipalities, and fish and wildlife needs, among other purposes. About 75% of CVP water is used for agricultural irrigation, including 7 of California’s top 10 agricultural counties. The CVP is operated jointly with the State Water Project (SWP), which provides much of its water to municipal users in Southern California. CVP water is delivered to users that have contracts with Reclamation. These contractors receive varying levels of priority for water deliveries based on several factors, including hydrology, water rights, prior agreements with Reclamation, and regulatory requirements. The Sacramento and San Joaquin Rivers’ confluence with the San Francisco Bay (Bay-Delta or Delta) is a hub for CVP water deliveries; many CVP contractors south of the Delta receive water that is “exported” from north of the Delta. Development of the CVP resulted in significant changes to the area’s natural hydrology. However, construction of most CVP facilities predated major federal natural resources and environmental protection laws. Much of the current debate related to the CVP revolves around how to deal with changes to the hydrologic system that were not significantly mitigated for when the project was constructed. Thus, multiple ongoing efforts to protect species and restore habitat have been authorized and are incorporated into project operations. Congress has engaged in CVP issues through oversight and at times legislation, including provisions in the 2016 Water Infrastructure Improvements for the Nation (WIIN Act; P.L. 114-322) that, among other things, authorized changes to operations in an attempt to provide for delivery of more water under certain circumstances. Although some stakeholders are interested in further operational changes to enhance CVP water deliveries, others are focused on the environmental impacts of operations. Various state and federal proposals are currently under consideration and have generated controversy for their potential to affect CVP operations and allocations. In mid-2018, the State of California proposed revisions to its Bay-Delta Water Quality Control Plan. These changes would require that more flows from the San Joaquin and Sacramento Rivers reach the Bay-Delta for water quality and fish and wildlife enhancement (and thus would further restrict water supplies for other users). At the same time, the Trump Administration is exploring options to increase CVP water supplies for users. Efforts to add or supplement CVP storage and conveyance also are being considered. The state is proposing a major new water conveyance project (known as the California WaterFix) that would bypass the Bay-Delta and, under certain conditions, increase exports from north to south for users. Additionally, Reclamation and the state are studying other new, augmented storage projects that aim to increase CVP and SWP water supplies. In the 115th Congress, legislators are considering bills that would aim to further increase CVP water exports compared to current baselines by altering environmental requirements and repealing parts of some existing restoration programs. Congress also is considering more targeted but potentially significant changes, such as appropriations provisions that would provide federal approval and funding for certain water storage projects in California, prohibit federal funding for the Bay-Delta Water Quality Control Plan, and prohibit judicial review of WaterFix and other water supply projects, among other things. Congress also may consider legislation that would extend or amend previously enacted CVP authorities (e.g., WIIN Act authorities that are expiring or have exceeded their appropriations ceiling). This report provides background on the CVP, the process of allocating CVP water supplies, and associated controversies. It also covers major proposals associated with the project’s current and future operation. Finally, it discusses recently enacted authorities and proposed legislation related to the CVP.

Oct 15, 2018

Taiwan: Background and U.S. Relations

Oct 15, 2018

Moldova: An Overview

Oct 15, 2018

Vehicle Fuel Economy and Greenhouse Gas Standards

Oct 11, 2018

Expiration of the 2014 Farm Bill

The farm bill is an omnibus, multi-year law that governs an array of agricultural and food programs. It provides an opportunity for policymakers to periodically address a broad range of agricultural and food issues. The farm bill is typically reauthorized about every five years. Recent farm bills have been subject to various developments, such as insufficient votes to pass the House floor, presidential vetoes, or—as in the case of 2008 and 2014 farm bills—short-term extensions. The current farm bill (the Agricultural Act of 2014, P.L. 113-79) has many provisions that expire in 2018. The 115th Congress has begun but not finished a new farm bill. An initial House vote on H.R. 2 failed by vote of 198-213, but floor procedures allowed that vote to be reconsidered, and it passed by a second vote of 213-211. The Senate passed its bill as an amendment to H.R. 2 by a vote of 86-11. Conference proceedings officially began on September 5, 2018, but have not yet reached agreement. The timing and consequences of expiration vary by program across the breadth of the farm bill. There are two principal expiration dates: September 30 and December 31. The 2014 farm bill generally expires either at the end of FY2018 (September 30, 2018), or with the 2018 crop year. Crop years vary by commodity, but the first to be affected by a new crop year is dairy, whose 2018 crop year ends on December 31, 2018. The possible consequences of expiration include minimal disruption (if the program is able to be continued via appropriations), ceasing new activity (if its authorization to use mandatory funding expires), or reverting to permanent laws enacted decades ago (for the farm commodity programs). For example An appropriations act or a continuing resolution can continue some farm bill programs even though an authority has expired. Programs using discretionary funding—and programs using appropriated mandatory funding like those in the SNAP account—can continue to operate via appropriations action. Most farm bill programs with mandatory funding (except the Supplemental Nutrition Assistance Program (SNAP), the farm commodity programs, and crop insurance) generally cease new operations when they expire (e.g., the Conservation Reserve Program (CRP), and Market Assistance Program (MAP)). The mandatory farm commodity programs would begin reverting to permanent law beginning with the 2019 crop year, for which dairy is the first to be affected, beginning on January 1, 2019. Crop insurance is an example of a program with mandatory funding that is permanently authorized outside of the farm bill and does not expire. “Permanent law” refers to nonexpiring farm commodity programs that are generally from the 1938 and 1949 farm bills. A temporary suspension of permanent law has been included in all recent farm bills, but reverting to permanent law would occur if the suspension expires. The commodity support provisions of permanent law are commonly viewed as being fundamentally different from current policy—and inconsistent with today’s farming practices, marketing system, and international trade agreements—as well as potentially costly to the federal government. Among the mandatory-funded programs that are usually the focus of the farm bill, there are two subcategories that may affect congressional action—some have baseline beyond FY2018 and some do not have baseline after FY2018. In an expiration, both categories of mandatory programs can face similar disruption when their authorizations expire. But the difference in having or not having a baseline is important if Congress considers an extension to deal with an expiration. Providing funding for those programs without baseline could make extension more difficult if budget offsets are needed to keep an extension budget-neutral.

Oct 11, 2018

Miscellaneous Tariff Bills (MTBs)

Oct 10, 2018

Defense’s 30-Year Aircraft Plan Reveals New Details

Oct 9, 2018

Pakistan’s Economic Crisis

Oct 9, 2018

Federal Communications Commission (FCC) Media Ownership Rules

The Federal Communications Commission (FCC) aims, with its broadcast media ownership rules, to promote localism and competition by restricting the number of media outlets that a single entity may own or control within a geographic market and, in the case of broadcast television stations, nationwide. In addition, the FCC seeks to encourage diversity, including (1) the diversity of viewpoints, as reflected in the availability of media content reflecting a variety of perspectives; (2) diversity of programming, as indicated by a variety of formats and content; (3) outlet diversity, to ensure the presence of multiple independently owned media outlets within a geographic market; and (4) minority and female ownership of broadcast media outlets. Two FCC media ownership rules have proven particularly controversial. Its national media ownership rule prohibits any entity from owning commercial television stations that reach more than 39% of U.S. households nationwide. Its “UHF discount” rule discounts by half the reach of a station broadcasting in the Ultra-High Frequency (UHF) band for the purpose of applying the national media ownership rule. In December 2017, the commission opened a rulemaking proceeding, seeking comments about whether it should modify or repeal the two rules. If the FCC retains the UHF discount, even if it maintains the 39% cap, a single entity could potentially reach 78% of U.S. households through its ownership of broadcast television stations. An important issue with respect to the national ownership cap, which the FCC has not addressed in a rulemaking, is how the agency treats a situation in which a broadcaster manages, operates, or sells advertising for a television station owned by another. In some cases, the FCC has articulated its policy on an ad hoc basis in the context of merger reviews, while in other instances it has effectively consented to such arrangements through its silence. Thus, a single entity could comply with the national ownership cap while still influencing broadcast television stations it does not own, reaching more viewers than permitted under the cap. For example, in reviewing the now-cancelled proposed merger between Sinclair Broadcast Group and Tribune Media Company in 2018, FCC commissioners raised concerns that Sinclair’s proposed sale of Tribune’s Chicago station WGN-TV in order to comply with the national ownership cap could effectively be a “sham” transaction due to Sinclair’s relationships with the proposed buyer. Nevertheless, neither Sinclair’s application nor the FCC’s order for a designated hearing addressed whether Sinclair’s intention to operate four television stations owned by others within the Wilkes-Barre-Scranton-Hazleton, PA, television market might cause it to breach the national ownership cap. In November 2017, acting in response to petitions from broadcast station licensees, the FCC repealed or relaxed several local media ownership rules. The repealed rules limited common ownership of broadcast television and radio stations within the same market, and of television stations and newspapers within the same market. The FCC also relaxed rules limiting common ownership of two top-four television stations (generally, ABC, CBS, FOX, and NBC stations) within the same market. In August 2018, the FCC issued rules governing a new “incubator” program designed to enhance ownership diversity. Parties, including the Prometheus Radio Project, have appealed these orders. The U.S. Court of Appeals for the Third Circuit is scheduled to hear arguments regarding the legal challenges to all of the FCC’s recent broadcast media ownership rule changes. The FCC plans to launch its next quadrennial media ownership review later this year. These regulatory changes are occurring against the background of significant changes in media consumption patterns. Based on surveys conducted by Pew Research Center, the percentage of adults citing local broadcast television as a news source declined from 65% in 1996 to 37% in 2016. As broadcast stations face competition for viewers’ attention from other media outlets, and thereby financial pressures, some station owners have sought to strengthen their positions by consolidating. The extent to which such media consolidation can occur is directly related to the FCC media ownership and attribution rules in place at the time.

Oct 9, 2018

Banking: Current Expected Credit Loss (CECL)

Some observers asserted that leading up to the financial crisis of 2007-2009 banks did not have sufficient credit loss reserves or capital to absorb the resulting losses and as a consequence supported additional government intervention to stabilize the financial system. In its legislative oversight capacity, Congress has devoted attention to strengthening the financial system in an effort to prevent another financial crisis and avoid putting taxpayers at risk. However, some Members of Congress have expressed concern that financial reforms have been unduly burdensome, reducing the availability and affordability of credit. Congress has delegated authority to the bank regulators and the Financial Accounting Standards Board (FASB) to address credit loss reserves. FASB promulgates the U.S. Generally Accepted Accounting Principles (U.S. GAAP), which provides the framework for financial reporting by banks and other entities. Credit loss reserves help mitigate the overstatement of income on loans and other assets by accounting for future losses. Credit losses are often very low shortly after loan origination, subsequently rising in the early years of the loan, and then tapering to a lower rate of credit loss until maturity. Consequently, a firm’s financial statements might not accurately reflect potential credit losses at loan inception. During the seven years leading up to the 2007-2009 financial crisis, the loan values held by the U.S. commercial banking system increased by 85%, whereas the credit loss reserves increased by only 21%. The ratio of loss reserves prior to the financial crisis was as low as 1.16% in 2006 and was more than 3.70% near the end of the crisis in early 2010. In response to banks’ challenges during and after the crisis, in June 2016, FASB promulgated a new credit loss standard—Current Expected Credit Loss (CECL). The new standard is expected to result in greater transparency of expected losses at an earlier date during the life of a loan. Early recognition of expected losses might not only help investors, but might also create a more stable banking system. CECL requires consideration of a broader range of reasonable and supportable information in determining the expected credit loss, including current and future economic conditions. In addition to loans, CECL also applies to a broad range of other financial products. The expected lifetime losses of loans and certain other financial instruments are to be recognized at the time a loan or financial instrument is recorded. All public companies are required to issue financial statements that incorporate CECL for reporting periods beginning after December 15, 2019. Although adherence to CECL is required for all public companies, it is expected to have a more significant effect on the banking industry. The change to credit loss estimates under CECL is considered by some to be the most significant accounting change in the banking industry in 40 years. The banking regulators (Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency) have issued preliminary guidance on CECL implementation. Banking regulators have also proposed changing the Allowance for Loan and Lease Losses (ALLL) to Allowance for Credit Loss (ACL) as a newly defined term. The change to ACL is to reflect the broader range of financial products that will be subject to credit loss estimates under CECL. During congressional hearings, banking industry professionals have raised several concerns about CECL. According to one estimate, the transition to CECL will likely result in an increase in loan loss reserves of between $50 billion and $100 billion for banks. As these projections are in aggregate across the banking industry, some banks might need to significantly increase their credit reserves whereas others might need to adjust less. To mitigate the effect of CECL, regulators have given banks the option of phasing in the increased credit reserves over three years. In addition, the Federal Reserve has delayed stress tests that incorporate CECL for the largest banking organizations until 2021. Banks are expected to incur additional costs of developing new credit loss models and costs of implementation. Banks may need to retain historical information on more financial products to estimate credit losses under CECL. Adopting CECL may require upgrading existing hardware and software or paying higher fees to third-party vendors for such services. Participants in recent congressional hearings have raised concerns about CECL implementation issues. The difference in how credit loss estimates are calculated based on CECL and international accounting standards could potentially disadvantage U.S. banks, but CECL is considered less complex to implement. Fannie Mae and Freddie Mac, the government-sponsored enterprises, are also to be subject to CECL credit loss estimates as they are subject to private-sector GAAP requirements even though they are currently in conservatorship under the Federal Housing Financing Agency.

Oct 9, 2018

Social Media Adoption by Members of Congress: Trends and Congressional Considerations

Communication between Members of Congress and their constituents has changed with the development of online social networking services. Many Members now use email, official websites, blogs, YouTube channels, Twitter, Facebook, and other social media platforms to communicate—technologies that were nonexistent or not widely available just a few decades ago. Social networking services have arguably enhanced the ability of Members of Congress to fulfill their representational duties by providing them with greater opportunities to share information and potentially to gauge constituent preferences in a real-time manner. In addition, electronic communication has reduced the marginal cost of communications. Unlike with postal letters, social media can allow Members to reach large numbers of constituents for a fixed cost. This report examines Member adoption of social media broadly. Because congressional adoption of long-standing social media platforms Facebook, Twitter, and YouTube is nearly ubiquitous, this report focuses on the adoption of other, newer social media platforms. These include Instagram, Flickr, and Google+, which have each been adopted by at least 2.5% of Representatives and Senators. Additionally, Members of Congress have adopted Snapchat, Medium, LinkedIn, Pinterest, Periscope, and Tumblr at lower levels. This report evaluates the adoption rates of various social media platforms and what the adoption of multiple platforms might mean for an office’s social media strategy. Data on congressional adoption of social media were collected by an academic institution in collaboration with the Congressional Research Service during the 2016-2017 academic year. This report provides a snapshot of a dynamic process. As with any new technology, the number of Members using any single social media platform, and the patterns of use, may change rapidly in short periods of time. As a result, the conclusions drawn from these data cannot necessarily be generalized or used to predict future behavior. The data show that, on average, Members of Congress adopt six social media platforms for official communications. Between 87% and 100% of Representatives and 94% and 100% of Senators have adopted the established platforms—Facebook, Twitter, and YouTube—during the 114th Congress (2015-2016) and the 115th Congress (2017-2018). These adoption rates generally match the popularity of these services among the general public. Instagram, Flickr, and Google+ are the most popular of the newer social media platforms. Among Senators, Instagram has been the most adopted platform, with between 36% (2015) and 71% (2018) of Senators having adopted it. For Flickr, between 34% (2017 and 2018) and 45% (2016) of Senators have adopted the service, and for Google+ between 5% (2018) and 19% (2016). For Representatives, Instagram was also the most adopted of the newer platforms, with between 23% (2015) and 52% (2017) of Representatives adopting the service. For Flickr, between 23% (2018) and 43% (2015) of Representatives have accounts, and for Google+ between 2.3% (2018) and 5.2% (2015) have adopted the platform. Additionally, this report discusses the possible implications of the adoption of social media, including managing multiple platforms, the type of content and posting location, the allocation of office resources to social media communications, and archiving social media content.

Oct 9, 2018

Trade Related Agencies: FY2019 Appropriations, Commerce, Justice, Science and Related Agencies (CJS)

On February 12, 2018, the Trump Administration submitted its FY2019 budget request to Congress. The proposal includes a total of $590.8 million for three trade-related agencies— the International Trade Administration (ITA), the U.S. International Trade Commission (USITC), and the office of the United States Trade Representative (USTR). This is 8.9% less than the FY2018 total appropriated amounts for these agencies. The Administration requests reducing funding for all three trade-related agencies. For FY2019, the request includes $440.1 million in direct funding for ITA (an 8.7% decrease from the FY2018 appropriation), $87.6 million for USITC (a 6.5% decrease), and $63.0 million for USTR (a 13.2% decrease). Congressional Actions In the spring of 2018, the House and Senate reported FY2019 Commerce, Justice, Science, and Related Agencies (CJS) appropriations bills, which include proposed funding for ITA, USITC, and USTR. The reported bills do not adopt many of the Administration’s budget reductions, and instead propose funding levels that are more similar to the FY2018-enacted amounts. The House Committee on Appropriations reported H.R. 5952 on May 17, 2018. The House proposal recommends a total of $647.6 million for the three CJS trade-related agencies. This proposal is $56.8 million more (9.6%) than the Administration’s request, and $0.7 million less (-0.1%) than the FY2018 enacted legislation. The House committee proposes $480.0 million in direct funding for ITA, $95.0 million for USTIC, and a total of $72.6 million for USTR, comprised of $57.6 million for salaries and expenses and an additional $15 million from the Trade Enforcement Trust Fund. The Senate Committee on Appropriations reported S. 3072 on June 14, 2018. The Senate committee-reported proposal recommends a total of $655.6 million for the three CJS trade-related agencies. This is $64.8 million (11.0%) more than the Administration’s request, and $7.3 million (1.1%) more than the FY2018 enacted appropriations. The Senate committee proposes $488.0 million in direct funding for ITA, $95 million for USITC, and a total of $72.6 million for USTR, comprised of $57.6 million for salaries and expenses and an additional $15 million from the Trade Enforcement Trust Fund. On September 28, 2018, the President signed into law the Continuing Appropriations Act, 2019 (CR) (P.L. 115-245, Division C). The CR provisions continue funding for these agencies (among others) at a prorated 2018 funding level through December 7, 2018.

Oct 5, 2018

Do Courts Have Inherent Authority to Release Secret Grand Jury Materials?

Oct 5, 2018

The Patient Protection and Affordable Care Act’s (ACA’s) Risk Adjustment Program: Frequently Asked Questions

The Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) created a permanent risk adjustment program that aims to reduce incentives that insurers may have to avoid enrolling individuals at risk of high health care costs in the private health insurance market. Section 1343 of the ACA established the program, which is designed to assess charges to health plans that have relatively healthier enrollees compared with other health plans in a given state. The program uses collected charges to make payments to other plans in the same state that have relatively sicker enrollees. The Centers for Medicare & Medicaid Services (CMS) administers the risk adjustment program as a budget-neutral program, so that payments made are equal to the charges assessed in each state. CMS assesses payments and charges on an annual basis, beginning in the 2014 benefit year. The concept of risk (i.e., the likelihood and magnitude of experiencing financial loss) is at the root of any insurance arrangement. One of the ways that insurers are exposed to risk is that individuals have more information about their own health status than an insurer does. Individuals who expect or plan for high use of health services (e.g., older or sicker individuals) are more likely to seek out coverage and enroll in plans with more benefits than individuals who do not expect to use many or any health services (e.g., younger or healthier individuals). Prior to the ACA, most state laws (and federal law under limited circumstances) allowed insurers to minimize their exposure to this risk by charging higher or lower premiums to potential enrollees based on factors such as age, gender, and health status. However, under current federal law, insurers in the individual and small-group markets are unable to set premiums based on gender or health status and are limited in how much they may vary premiums by age. Without being permitted to account for the risk from individuals who expect or plan for high use of health services using the aforementioned criteria, insurers still may attempt to avoid such individuals enrolling by using networks, formularies, and other techniques that are not likely to appeal to them, though insurers are limited by other ACA requirements (e.g., they are required to offer certain benefits). The ACA established the permanent risk adjustment program to try to eliminate incentives insurers may have to avoid enrolling high-risk individuals. This program, along with the transitional reinsurance program and the temporary risk corridors programs, is intended to encourage insurers to participate in the marketplace by moderating the risk and uncertainty that may reduce their likelihood to participate. Under the risk adjustment program, insurers place enrollee and claims data for a benefit year on a computer server that they own but that runs CMS software. CMS’s software calculates a risk score for an enrollee using that enrollee’s demographic and diagnosis information and obtains summary data for each plan. CMS uses the risk scores for a plan’s enrollees to calculate the difference between the plan’s predicted costs for its enrollees relative to the predicted state average cost, given the health status of the plan’s enrollees and the estimated premium revenue that the plan would be able to collect based on allowable rating factors, relative to the estimated state average. This difference is then multiplied by the state average premium and results in either a risk adjustment payment or charge for a given plan. This report provides responses to some frequently asked questions (FAQs) about the ACA risk adjustment program. The report begins with background on the health insurance market, discusses why risk mitigation matters, and introduces the role of risk adjustment in risk mitigation. The next section describes the mechanics of the program, including how enrollee risk scores are determined and how they are used to calculate payments and charges. The report concludes with questions regarding the program’s experience thus far and future changes to the program.

Oct 4, 2018

Risk Adjustment in the Private Health Insurance Market

Oct 3, 2018

The Trump Administration’s “Free and Open Indo-Pacific”: Issues for Congress

The Trump Administration has outlined a goal of promoting a Free and Open Indo-Pacific (FOIP), seeking to articulate U.S. strategy towards an expanded Indo-Asia-Pacific region at a time when China’s presence across the region is growing. The FOIP initiative is identified through a number of statements by the President and senior Administration officials. Insight into the initiative’s context and perspective is also offered by the Administration’s National Security Strategy and the National Defense Strategy. The FOIP concept represents a significant change in U.S. strategic thinking towards the region because of its explicit linkage of South Asia and the Indian Ocean region with the Asia-Pacific region. The FOIP also emphasizes maritime issues. While recent statements by Secretary of State Mike Pompeo have provided a more detailed understanding of the strategy, uncertainty remains over the specifics of the initiative. Some critics of the initiative wonder if the United States has the vision, political will, or economic resources necessary to implement a FOIP strategy effectively. Some observers have pointed to inconsistencies with other Trump Administration initiatives toward the region, and to the lack of detail necessary to operationalize the concept. Some also argue that the economic aspects of the initiative are relatively small when compared to either China’s lending, including under its Belt and Road Initiative, or the region’s infrastructure investment needs. Another often-expressed concern is that the FOIP’s initial emphasis on the “Quad” with Australia, India, and Japan raises concerns that it risks eroding U.S. influence in Southeast Asia by not sufficiently incorporating that sub-region’s leading international body, the Association of Southeast Asian Nations, into U.S. strategy toward the region. Regional perceptions of the United States’ commitment to the region were shaken by the Trump Administration’s decision to withdraw from the proposed Trans-Pacific Partnership trade agreement in 2017. This decision also led to perceptions that the United States lacked an integrated regional strategy despite the region’s economic importance to the United States. According to the State Department, two-way trade between the United States and the Indo-Pacific is $1.4 trillion and U.S foreign direct investment in the region is $860 billion a year. The FOIP initiative may raise questions for Congress related to its oversight and appropriations roles: Does the initiative fully account for the strategic and economic environment in the Indo-Pacific, including implications related to but going beyond the rise of China and its Belt and Road Initiative? Does the initiative correctly identify and adequately secure U.S. interests in the Indo-Pacific region? Does it place proper emphasis on developing diplomatic approaches and economic institutions as well as military responses when crafting a strategic vision for the region? Are U.S. Indo-Pacific military forces properly deployed to secure U.S. interests? Is future defense procurement adequately funded to secure U.S. interests? Is the value to the United States of working with friends and allies in the region properly understood and are these alliance and defense relationships being properly managed in order to leverage U.S. strategic posture in the region? Are American values properly taken into account in developing a FOIP strategy?

Oct 3, 2018

Consumer Credit Markets and Loan Pricing: The Basics

Oct 3, 2018

Macedonia: Uncertainty after Referendum on Country’s Name

A September 30, 2018, referendum on changing Macedonia’s name to the Republic of North Macedonia produced mixed results and rival interpretations from the government and opposition. Despite voter turnout (37%) being lower than many expected, nearly 92% of those who voted approved changing the country’s name to resolve a long-standing dispute with Greece and facilitate Macedonia’s eventual membership in NATO and the European Union (EU). Based on this relatively high margin of victory, the government quickly claimed that the nonbinding referendum result was a clear mandate to proceed with a parliamentary vote on required constitutional changes. Yet opponents of the name change, who generally boycotted the referendum, also viewed the result as a win because voter turnout was below the 50% necessary for the referendum results to be considered valid. With both sides claiming victory, it is unclear whether the government of Zoran Zaev can secure the two-thirds majority of parliamentary votes needed to amend the constitution to allow the name change. If it does not, Macedonia’s path to NATO and EU membership could remain blocked, and some analysts suggest it could be years before conditions are conducive to another Greek-Macedonian agreement on the name issue. Recent Breakthrough in Name Dispute For nearly three decades, Greece has wielded its veto power to block Macedonia’s NATO and EU membership despite generally positive assessments of Macedonia’s qualifications. The bilateral dispute dates back to 1991, when Macedonia declared independence from the former Yugoslavia as the Republic of Macedonia. From Greece’s perspective, Macedonia’s use of the name implies territorial ambitions toward northern Greece reflecting its claim to the cultural heritage of ancient Macedonia. Greece continues to refer to the country as the Former Yugoslav Republic of Macedonia. In 2017, Macedonia’s new Social Democrat-led government prioritized renewed efforts toward Euro-Atlantic integration. The presence of new leaders at the bargaining table, along with EU and NATO support and positive signals from Athens, provided an opportunity to compromise over the name issue. In June, the foreign ministers of Greece and Macedonia signed the Prespa Agreement, whereby Macedonia would change its name to the Republic of North Macedonia, Greece would no longer object to Macedonia’s Euro-Atlantic integration, and both countries would promise to respect existing borders. Nationalist protests broke out in both countries over the agreement. Prior to the referendum, key officials from Macedonia’s opposition VMRO DPMNE party, including President Gjorge Ivanov and party leader Hristijan Mickoski, accused the government of betraying Macedonia. Ivanov called on the party’s supporters to boycott the referendum. Next Steps For the Prespa Agreement to enter into force, Macedonia’s parliament must make constitutional changes that adopt key provisions—including the name change—by the end of 2018. Although the referendum is not binding, the Macedonian government hoped that strong turnout would pressure opposition members of parliament to endorse the necessary changes. Prime Minister Zaev has vowed to move the process forward in parliament. The government believes it has approximately 71 of the 80 votes (out of 120) necessary, but the referendum’s relatively low turnout makes it harder for the government to secure nine opposition votes. VMRO DPMNE leader Mickoski declared that the deal with Greece is “dead.” Some analysts believe the party is loath to give a political victory to the Zaev government and instead hopes to author a more palatable agreement with Greece down the road, even though it could be years before this is feasible. VMRO DPMNE lists NATO and EU membership as strategic priorities, and a strong majority of Macedonia’s population supports these goals. Some analysts believe the party is sensitive to its international reputation and could yield to pressure from other conservative parties, particularly the parties of key “yes” campaign proponents such as German Chancellor Angela Merkel and Austrian Chancellor Sebastian Kurz. Prime Minister Zaev put additional pressure on the VMRO DPMNE by threatening to hold snap elections if the constitutional changes fail to pass. If governing parties gain additional seats, the changes could pass without the opposition’s support. Some observers view early elections as the more likely scenario. If parliament approves the constitutional changes, the next step would be ratification by Greece’s parliament. The issue is also contentious in Greece, where nationalist protests and accusations of betrayal have mirrored the situation in Macedonia. Prime Minister Alexis Tsipras faces opposition to the deal from his government’s junior coalition partner, the Independent Greeks, as well as from the conservative opposition. Nevertheless, Tsipras survived a no-confidence vote over the agreement in June. U.S. Support for Macedonia’s Euro-Atlantic Integration U.S. Administrations and many Members of Congress have long supported Macedonia’s Euro-Atlantic integration and backed its compromise with Greece to resolve the name dispute. A U.S. diplomat has been the key U.N. negotiator for over two decades. The State Department praised the support from Macedonian voters in the September 30 referendum and urged politicians to rise above the partisan fray by finalizing the Prespa Agreement. NATO leaders have said that membership consultations with Macedonia could be finalized once the Prespa Agreement is fully implemented. Macedonia then could become NATO’s 30th member, pending final ratification by member states, including by the U.S. Senate. During past NATO enlargements, the ratification process typically has taken from six months to one year. U.S. officials and many Members of Congress believe that Macedonia’s NATO and EU membership would be a source of stability in the Western Balkans and would help ward off the violence and interethnic tensions that have flared periodically in Macedonia. Some analysts speculate that the Prespa Agreement could set a powerful example of compromise for parties to other seemingly intractable disputes in the Balkans, such as Serbia and Kosovo. Proponents of Macedonia’s Euro-Atlantic integration also have stressed the importance of countering Russia’s increased presence in Macedonia, which presence includes a heightened Russian media footprint, a proliferation of Russia-Macedonia friendship organizations, and cooperation between Vladimir Putin’s United Russia party and the United Macedonia Party. Some analysts believe that Russia, which opposes Macedonia’s potential NATO membership, may have supported the boycott campaign that dampened referendum turnout.

Oct 3, 2018

Argentina’s Economic Crisis and Default

Oct 2, 2018

Designing Congressional Commissions: Background and Considerations for Congress

Congressional advisory commissions are temporary entities established by Congress to provide advice, make recommendations for changes in public policy, study or investigate a particular problem or event, or perform a specific duty. Generally, commissions may hold hearings, conduct research, analyze data, investigate policy areas, and/or make field visits as they perform their duties. Most complete their work by delivering their findings, recommendations, or advice in the form of a written report to Congress. For example, the National Commission on Terrorist Attacks Upon the United States was created to “examine and report upon the facts and causes relating to the terrorist attacks of September 11, 2001,” and to “investigate and report to the President and Congress on its findings, conclusions, and recommendations for corrective measures that can be taken to prevent acts of terrorism,” among other duties. The commission ultimately submitted a final report to Congress and the President containing its findings and conclusions, along with 48 policy recommendations. Advisory commission legislation generally has specific features that provide the commission with the authorities and resources necessary to complete its mission. Using a dataset of statutorily authorized congressional commissions from the 101st Congress (1989-1990) to the 115th Congress (2017-2018), this report focuses on the legislative language used to establish congressional commissions. Policymakers face a number of choices when designing a commission. Statutes establishing congressional commissions commonly provide a series of deadlines that outline the commission’s statutory lifecycle, including deadlines for appointment of commissioners, the commission’s initial meeting, the submission of a final report and any interim reports, and the commission’s termination. Additionally, commission statutes frequently include sections that establish the commission and state its mandate; provide a membership structure and authority for making appointments; outline the commission’s duties; grant the commission certain powers; define any rules of procedure; address hiring of commission staff; and prescribe how the commission will be funded. A variety of options are available for each of these decisions. This report discusses the above-listed topics, along with subissues relevant to each. Legislators can tailor the composition, organization, and working arrangements of a commission based on particular congressional goals; this report provides illustrative examples of statutory language for these topics, discusses potential alternative approaches, and analyzes possible advantages or disadvantages of different choices in commission design. This report focuses on congressional commissions created by statute and does not address entities created by the President or other nonstatutory advisory bodies.

Oct 2, 2018

Army Corps of Engineers Annual and Supplemental Appropriations: Issues for Congress

The U.S. Army Corps of Engineers (USACE) is an agency within the Department of Defense with both military and civil works responsibilities. The agency’s civil works activities consist largely of the planning, construction, and operation of water resource projects to maintain navigable channels, reduce flood and storm damage, and restore aquatic ecosystems. Congress directs USACE’s civil works activities through authorization legislation, annual and supplemental appropriations, and oversight. For Congress, the issue is not only the level of USACE appropriations but also how efficiently the agency is delivering flood control, navigation, and ecosystem restoration projects. These projects can have significant local as well as national economic and environmental benefits. Annual and Supplemental Appropriations USACE discretionary appropriations, which typically are provided through annual Energy and Water Development appropriations acts, have ranged from $4.7 billion to $7.0 billion during the decade from FY2009 to FY2019 and have been increasing since FY2013. In recent years, Congress has directed that more than 50% of the enacted appropriations be used for operation and maintenance of USACE’s aging infrastructure. USACE also has a prominent role in responding to natural disasters, especially floods, in U.S. states and territories. Congress increasingly is using supplemental appropriations not only to perform emergency response and repair for damaged flood control works and USACE projects but also to study and construct new projects that reduce flood risks in areas recently affected by hurricanes and floods. From FY2005 through FY2018, Congress enacted 13 supplemental bills related to flooding and natural disasters, providing a total of almost $45 billion to USACE; for the same period, annual discretionary appropriations for USACE’s flood-related projects and activities totaled $23 billion. Supplemental appropriations bills often alter or waive various requirements for USACE activities, such as cost shares and project cost limitations, and establish project selection and reporting requirements that differ from requirements for USACE activities funded through annual discretionary appropriations. Issues for Congress Issues for Congress include the significant role of supplemental appropriations in advancing studies and construction of flood control projects since FY2005 and the agency’s backlog of authorized but unconstructed projects. The agency has reported a $96 billion backlog of authorized construction projects; for context, annual appropriations for the USACE Construction account (which funds most USACE construction projects) in FY2018 and FY2019 are $2.1 billion and $2.2 billion, respectively. Congress also has limited the number of new studies and construction projects initiated with annual discretionary appropriations (e.g., a limit of five new construction starts using FY2019 appropriations). Given that only a few construction projects typically are started each fiscal year, numerous projects authorized for construction by previous Congresses remain unfunded. USACE may fund some of the authorized flood control projects in its backlog with the more than $17 billion in emergency supplemental appropriations provided to USACE accounts in the Bipartisan Budget Act of 2018 (BBA; P.L. 115-123). Although no numerical limits on starting new studies or construction projects are associated with these funds, the study and construction funds have some geographic limitations that tie their use to areas affected by flooding by the hurricanes in 2017 or by more than one flood in calendar years 2014 through 2017. As a result of this limitation, seventeen states (including North Carolina, which was affected by Hurricane Matthew in 2016 and Hurricane Florence in 2018) did not qualify for USACE supplemental construction appropriations provided through the BBA 2018. Related policy questions for Congress and other decisionmakers include the following: How have the roles of Congress and the Administration shifted vis-à-vis USACE and its appropriations, and does that shift affect the type of information and engagement that Congress may pursue in the future regarding USACE’s use of appropriations? How do trends in annual and supplemental appropriations amounts, processes, and requirements influence the effective, efficient, and accountable use of federal funding provided to USACE? What do these trends portend for USACE’s long-term planning, budgeting, and duties?

Oct 1, 2018

Brazil’s Presidential Election

Brazil—the fifth most populous country and ninth-largest economy in the world—is scheduled to hold general elections on October 7, 2018. The presidential race remains extremely volatile, and the outcome could lead to changes in the economic and foreign policies of a U.S. “strategic partner.” Domestic Context The 2018 election is taking place as Brazil struggles to emerge from a series of domestic crises. The country fell into a deep recession in 2014, due to a decline in global commodity prices and economic mismanagement under the center-left Workers Party (PT) government of President Dilma Rousseff (2011-2016). The unemployment rate more than doubled as real gross domestic product contracted by more than 8% from 2015 to 2016. Although economic growth returned in 2017, conditions remain difficult. More than 12% of the population is unemployed, and several million Brazilians who joined the country’s lower middle class from 2004 to 2013 have fallen back into poverty. Brazil also is contending with the repercussions of massive corruption scandals. Since 2014, investigators have uncovered arrangements throughout the public sector in which businesses provided bribes and illegal campaign donations to politicians in exchange for contracts or other favorable government treatment. The revelations discredited much of Brazil’s political establishment and contributed to the controversial impeachment and removal from office of President Rousseff in August 2016. These political crises have eroded citizens’ faith in their democratic institutions; 28% of Brazilians expressed satisfaction with their democracy in 2017. President Michel Temer, who succeeded Rousseff, is deeply unpopular. His center-right government has enacted several major economic reforms, including measures to freeze government spending for 20 years, weaken worker protections, and allow greater private sector participation in Brazil’s oil sector. Temer also has worked with the Brazilian congress to shield himself from corruption charges. Although international investors have applauded Temer’s economic policies, 92% of Brazilians disapprove of his administration. Presidential Race The current presidential front-runner is Jair Bolsonaro, a far-right congressman and former army captain backed by the small Social Liberal Party. Bolsonaro has been in congress since 1991 but is running as a political outsider. He is a longtime defender of Brazil’s military dictatorship, and his running mate—a retired army general—suggested in 2017 that the armed forces might need to intervene to deal with corruption. In recent months, Bolsonaro has asserted that police officers should be free to kill suspected criminals and that land rights activists should be considered terrorists. Although his populist law-and-order message appeals to many Brazilians fed up with corruption and escalating violence, others have expressed alarm at his inflammatory comments and authoritarian sympathies. On September 6, Bolsonaro was stabbed at a political rally in an apparent assassination attempt. He was discharged from the hospital on September 29 but may not be able to return to the campaign trial before Election Day. Figure 1. Presidential Election Polls: September 2018 / Source: IBOPE Inteligência. Most of Brazil’s political establishment is supporting Geraldo Alckmin, a former governor of São Paulo state from the center-right Brazilian Social Democracy Party (PSDB). Alckmin has embraced the Temer Administration’s economic agenda and pledged to enact additional market-oriented reforms if elected president. The parties backing Alckmin’s candidacy control more than half of the seats in the lower house of congress, giving him the largest share of Brazil’s public campaign finance fund and nearly half of all political advertising time on television. Those advantages have not translated into popular support, however, as Alckmin has been unable to consolidate the centrist vote and has lost some traditional PSDB voters to Bolsonaro. Former president Luiz Inácio Lula da Silva (2003-2010) of the PT, who is currently serving a 12-year prison sentence for corruption, led the presidential race for more than a year. Electoral authorities declared Lula ineligible to run on August 31, however, after an appeals court upheld his 2017 conviction. Lula remains popular among many Brazilians whose standard of living improved significantly during his tenure. Fernando Haddad, a former education minister and mayor of São Paulo, replaced Lula at the top of the PT ticket. He quickly won over many Lula supporters (see Figure 1) but continues to face competition for left-leaning voters from Ciro Gomes of the Democratic Labor Party. Gomes is a former member of congress, cabinet minister, and governor of the northeastern state Ceará. If no candidate wins a majority of the vote, the top two finishers will advance to a runoff scheduled for October 28, 2018. The latest polls suggest Bolsonaro would enter the second round trailing each of his principal competitors. Potential Policy Shifts Many economists argue that Brazil’s economic recovery depends on the next president enacting extensive reforms, including measures to reduce pension costs, simplify the tax system, and liberalize trade flows. Alckmin has embraced such policy changes, but the other candidates are more ambivalent. Haddad and Gomes have pledged to address the fiscal deficit; however, they also intend to reverse most of the Temer Administration’s reforms and reassert a stronger role for the state in development. Bolsonaro has expressed support for market-oriented policies during the campaign but has advocated economic nationalism throughout his political career. Whoever is elected may struggle to move legislation through Brazil’s fragmented congress. Stronger economic growth in Brazil could bolster demand for U.S. exports, which totaled $63.7 billion in 2017. Brazilian leaders, who have been preoccupied with domestic crises, have dedicated little attention to foreign affairs over the past five years. The next president will face similar challenges but could reassert Brazilian influence abroad once the domestic situation stabilizes. Most of the candidates likely would maintain Brazil’s long-standing commitments to multilateralism, peaceful dispute settlement, and non-intervention. Bolsonaro is more likely to break with tradition. He has called for closer alignment with President Trump and has announced his intention to withdraw from multilateral arrangements such as the Paris Agreement on climate change and the U.N. Human Rights Council. A more assertive Brazilian foreign policy could help address global challenges, such as the crisis in Venezuela. It also could lead to bilateral tensions, however, when U.S. and Brazilian interests diverge.

Oct 1, 2018

Expiration of the 2014 Farm Bill: Some Potential Implications

Sep 28, 2018

Federalism-Based Limitations on Congressional Power: An Overview

The U.S. Constitution establishes a system of dual sovereignty between the states and the federal government, with each state having its own government, endowed with all the functions essential to separate and independent existence. Although the Supremacy Clause of the Constitution designates “the Laws of the United States” as “the supreme Law of the Land,” other provisions of the Constitution—as well as legal principles undergirding those provisions—nonetheless prohibit the national government from enacting certain types of laws that impinge upon state sovereignty. The various principles that delineate the proper boundaries between the powers of the federal and state governments are collectively known as “federalism.” Federalism-based restrictions that the Constitution imposes on the national government’s ability to enact legislation may inform Congress’s work in any number of areas of law in which the states and the federal government dually operate. There are two central ways in which the Constitution imposes federalism-based limitations on Congress’s powers. First, Congress’s powers are restricted by and to the terms of express grants of power in the Constitution, which thereby establish internal constraints on the federal government’s authority. The Constitution explicitly grants Congress a limited set of carefully defined enumerated powers, while reserving most other legislative powers to the states. As a result, Congress may not enact any legislation that exceeds the scope of its limited enumerated powers. That said, Congress’s enumerated powers nevertheless do authorize the federal government to enact legislation that may significantly influence the scope of power exercised by the states. For instance, subject to certain restrictions, Congress may utilize its taxing and spending powers to encourage states to undertake certain types of actions that Congress might otherwise lack the constitutional authority to undertake on its own. Similarly, the Supreme Court has interpreted the Constitution’s Commerce Clause to afford Congress substantial (but not unlimited) authority to regulate certain purely intrastate economic activities that substantially affect interstate commerce in the aggregate. Congress may also enact certain types of legislation in order to implement international treaties. Additionally, pursuant to a collection of constitutional amendments ratified shortly after the Civil War, Congress may directly regulate the states in limited respects in order to prevent states from depriving persons of certain procedural and substantive rights. Finally, the Necessary and Proper Clause augments Congress’s enumerated powers by empowering the federal government to enact laws that are “necessary and proper” to execute its express powers. In addition to the internal constraints on Congress’s authority, the Constitution also imposes external limitations on Congress’s powers vis-à-vis the states—that is, affirmative prohibitions on certain types of federal actions found elsewhere in the text or structure of the Constitution. The Supreme Court has recognized, for instance, that the national government may not commandeer the states’ authority for its own purposes by forcing a state’s legislature or executive to implement federal commands. Nor may Congress apply undue pressure to coerce states into taking actions they are otherwise disinclined to take. Furthermore, the principle of state sovereign immunity—which limits the circumstances in which a state may be forced to defend itself against a lawsuit against its will—imposes significant constraints on Congress’s ability to subject states to suit. Finally, the Supreme Court has recognized limits to the extent to which Congress may subject some states to more onerous regulatory burdens than other states.

Sep 27, 2018

Global Trade Imbalances

In July 2018, the International Monetary Fund (IMF) released its latest report on global trade imbalances that identifies countries with “excessive” current account balances and exchange rates that are “misaligned.” The current account is a broad measure of a country’s global economic engagement and is comprised of trade in goods, services, and official flows. The report indicates that 40% to 50% of countries had imbalances that were “excessive,” and that imbalances of about 3.25% of world GDP—both surpluses and deficits—remained constant in 2017, as indicated in Figure 1. In other words, some countries are saving too much and others are borrowing too much (globally, the combined saving and borrowing nets to zero, including statistical discrepancy). Individuals, businesses, and governments contribute to the saving rate. Advanced economies account for a rising share of the deficit: the United States has the single largest deficit. Other trade specialists argue that extensive cross-border capital flows have reduced the usefulness of the current account as a monitoring device and that policy prescriptions based on current account imbalances—and trade imbalances as the largest component of the current account—may be counterproductive. Figure 1. Global Current Account Surpluses and Deficits ($ in billions) / Source: International Monetary Fund. The IMF report potentially supports the Trump Administration’s criticism of the global trading system. The Administration has used the U.S. trade deficit and trade practices of U.S. trading partners as barometers for evaluating the success or failure of the global trading system, U.S. trade policy, and bilateral trade relations with various countries. It also characterizes the trade deficit as harming the performance and national security of the U.S. economy. Citing many of these concerns, the President imposed tariffs under three U.S. laws that allow the Administration to impose trade restrictions based on certain criteria: (1) Section 201 (19 U.S.C. §2251), (2) Section 232 (19 U.S.C. §1862), and (3) Section 301 (19 U.S.C. §2411). The United States has experienced current account deficits since the mid-1970s. In 2017, the United States had a current account deficit of about $450 billion, as indicated in Figure 2. The United Kingdom also experienced current account deficits, while Germany, Japan, and China had surpluses. Relative to the size of the U.S. economy (measured by U.S. gross domestic product [GDP]), the current account deficit is equivalent to less than 3% of U.S. GDP. Figure 2. Current Account Balances of Major Economies ($ in billions) / Source: International Monetary Fund. Current account balances are monitored to signal countries that may face long-term debt sustainability issues and, therefore, may require near-term adjustments to macroeconomic policies. The IMF argues that imbalances can be beneficial for countries with aging populations that accrue surpluses to draw down as workers retire. Also, the IMF argues that current account deficits and surpluses may be useful at different times for country-specific shocks and to facilitate a globally efficient allocation of capital. It also states that imbalances may be “symptoms of distortions” and that sustained excess imbalances “risk aggravating trade tensions,” may lower the rate of global economic growth, and can be disruptive for emerging economies. The IMF encourages countries to take corrective measures, but argues that protectionist trade policies negatively affect domestic and global growth and have a limited impact on external balances. The IMF estimates “excessive” current account balances by comparing the actual current account position with a theoretical average level, identified as “normal.” This normal positon represents values that are consistent with certain economic “fundamentals and desirable medium-term policies,” the IMF derives by replacing current economic policies with “desired” economic policies. A current account balance that is excessive or a currency that is misaligned does not mean the IMF determined that a country had purposely manipulated its trade balance or its exchange rate. The IMF also estimates a weighted average of exchange rates, or the real effective exchange rate (REER), that is consistent with the IMF’s estimates of the normal current account position. Finally, the IMF prepares a subjective evaluation using country-specific information. The IMF estimates the gap between the actual and estimated current account balance for the United States was negative 1.6% of GDP and the dollar was overvalued by 8% to 16%. Most economists conclude the U.S. trade deficit is largely the product of a low national savings rate, attributed in part to U.S. macroeconomic policy, or the combination of fiscal policy—notably large and persistent budget deficits—and monetary policy. This combination of policies determines the overall saving-investment balance in the economy, which then determines the inward and outward flows of funds that affect the international exchange value of the dollar and the U.S. trade balance. Although quite esoteric, some trade specialists argue that the widely accepted characterization of the current account as a product of a domestic saving-investment relationship ignores the size and extent of cross-border capital flows. These flows distinguish differences between the role of national saving from the actual financing of a trade deficit and suggesting imbalances in financing, not in the current account, can lead to macroeconomic instability similar to the 2008-2009 financial crisis. A country’s ability to finance its trade deficit can be distinct from its domestic saving-investment balance, as is apparent from the U.S. experience. Despite a low overall national savings rate, the United States has financed its trade deficit through various methods as foreigners have acquired U.S. government, business, and household assets. This process is facilitated by the perceived strengths of the U.S. economy and the role of the dollar as the preeminent global reserve currency. This broad international usage of the dollar, however, challenges the prospect that the dollar is misaligned, despite the persistent U.S. current account deficits, and the role of the current account as a trade or public policy monitoring indicator. It also implies that the ability of the United States to finance its current account deficit is distinct from its domestic saving-investment imbalance and likely will depend on foreign investors’ evaluation of the relative security and stability of the United States as an investment location and of the relative attractiveness of dollar-denominated assets.

Sep 27, 2018

EPA Proposes the Affordable Clean Energy Rule to Replace the Clean Power Plan

Sep 26, 2018

The September 2018 Inter-Korean Summit

From September 18 to 20, South Korean President Moon Jae-in visited North Korea and held approximately five hours of meetings with North Korean leader Kim Jong-un. During the summit, their third since April 2018, the two leaders issued a Pyongyang Joint Declaration pledging denuclearization of the Korean Peninsula, improvements in inter-Korean relations, and confidence-building measures to ease military tension. Kim promised to visit Seoul “at an early date.” The Moon-Kim summit has created potential opportunities and obstacles for the United States. The summit appears to have injected new momentum into North Korea-U.S. denuclearization talks, which had stalled in the months after President Trump’s summit with Kim in Singapore in June. Meeting with Moon days after the inter-Korean summit, President Trump said that he and Kim would be holding a second summit “in the not too distant future.” The September inter-Korean summit, however, also may have constrained the United States’ freedom of action, particularly if North Korea does not follow through on its pledges. Major Outcomes Kim’s reciprocal visit to Seoul: Moon said that the two leaders agreed the visit should occur by the end of 2018, “if possible.” If realized, it will be the first trip to Seoul by a DPRK leader since the end of the Korean War in 1953. Nuclear and missile programs: The two leaders agreed that they would “cooperate ... in the process of pursuing complete denuclearization of the Korean Peninsula,” and that “substantial progress toward this end must be made in a prompt manner.” Kim repeated his June pledge to Trump to dismantle the Tongchang-ri (also called Sohae) missile and satellite launch site, adding for the first time that international experts could be present. Kim pledged to take additional steps, including the “permanent dismantlement” of its nuclear facilities in Yongbyon, “as the United States takes corresponding measures.” Military confidence-building measures: Among other steps, the two Koreas agreed to reestablish communications links to prevent accidental military clashes, create a no-fly zone along the DMZ, withdraw many of their guard posts within the DMZ, and create in effect a “no military drills zone” and a joint fishing zone in the Yellow Sea. Economic measures: Moon and Kim pledged to hold a groundbreaking ceremony for reconnecting east and west coast roads and railroad tracks by the end of 2018. They also agreed, “as conditions ripe [sic],” to reopen the inter-Korean Kaesong Industrial Complex (KIC) inside North Korea that Moon’s predecessor closed in February 2016 following Pyongyang’s fourth nuclear test. Moon’s 200-person contingent included business leaders, including the heads of Samsung, Hyundai, and LG. Other exchanges and cooperation: Moon and Kim pledged to jointly participate in the 2020 Olympics and bid to co-host the 2032 Summer Olympics, as well as strengthen medical and environmental cooperation, especially in forestry. They also agreed to create a permanent facility in North Korea for temporarily reuniting the thousands of families separated since the Korean War. Having already established their first-ever permanent liaison office, at the KIC in North Korea, the declaration said the leaders wished that “current developments in inter-Korean relations will lead to reunification.” Symbolism: The summit, which received TV coverage in both countries, included the two leaders’ motorcade through Pyongyang and joint visit with their wives to the peak of the Peninsula’s tallest mountain, Mt. Paektu, the Korean people’s mythical birthplace. In the first direct speech by a South Korean president to a large North Korean audience, Moon gave a short address to a crowd of approximately 150,000 North Koreans attending a gymnastics performance. Questions How significant are Kim’s nuclear and missile pledges? Moon has said that if North Korea follows through on Kim’s existing promises, it essentially will be unable to advance its nuclear and missile programs. However, many U.S. and ROK experts are skeptical because North Korea has yet to disclose the composition and/or size of its nuclear material or warhead stocks and facilities, including those not at Yongbyon. North Korea and the United States also have not agreed upon what constitutes “denuclearization.” Nor have they agreed upon a timeline or verification measures for dismantlement. North Korea “continue[s] to produce fissile material,” Secretary of State Mike Pompeo testified in July, shortly after U.S. intelligence agencies reportedly gathered evidence of DPRK efforts to conceal parts of its nuclear programs. Pyongyang also reportedly has continued working on more advanced long-range missiles. What are the “corresponding measures” the United States must take for North Korea to dismantle Yongbyon? Moon has aligned with Kim’s view that concessions by the United States and DPRK be made in a “balanced manner,” and that the United States should “put an end to hostile relations” and “provide security assurances to the North,” as Trump promised in Singapore. However, the Pyongyang Declaration did not specify which party needs to move first, on what measures. This has stymied progress in U.S.-DPRK relations since the Singapore summit. Without such an agreement, which Moon appears to be trying to broker, the policy logjam could continue. Do the military agreements limit the U.S.-ROK alliance’s capabilities? Defense analysts have claimed that the dramatic expansion of existing no-fly zones could curtail the alliance’s ability to conduct surveillance on North Korean military activities north of the DMZ. Together with the removal of guard posts in the DMZ, North Korea may be better positioned to launch a surprise attack on South Korea. Have the two Koreas limited the United States’ options? By eroding North Korea’s diplomatic and economic isolation, institutionalizing their rapprochement, and declaring their desire for non-aggression and a peace declaration, the two Koreas over the past nine months may have limited the United States’ ability to return to its expansive “maximum pressure” campaign of 2017. They also may have further reduced the viability of a U.S. military strike against North Korea, which the Trump Administration reportedly was considering in 2017, because it likely will be harder to gain support from South Korea. President Moon has stated that he seeks “an enduring peace regime” to enable “the South and North to become the masters of Korean Peninsula issues without getting pushed around by any international situation....”

Sep 25, 2018

EPA Proposes New Permitting Test for Power Plant Modifications

Sep 25, 2018

Escalating Tariffs: Potential Impacts

Concerns over trading partner trade practices and the U.S. trade deficit have been a focus of the Trump Administration. For a timeline of recent actions, see CRS Insight IN10943, Escalating Tariffs: Timeline. Citing these concerns and others, the President has imposed tariffs under three U.S. laws and authorities (Figure 1) that allow the Administration to unilaterally impose trade restrictions: (1) Section 201 on U.S. imports of washing machines and solar products; (2) Section 232 on U.S. imports of steel and aluminum, and potentially autos and uranium, and (3) Section 301 on U.S. imports from China. Annual U.S. imports of goods subject to the additional tariffs, which range from 10% to 50%, totaled $282 billion in 2017 (Table 1). All formally proposed tariffs are now in effect, but the President has informally raised the prospect of tariffs on an additional $267 billion of U.S. annual imports from China, and, pending a Section 232 investigation, approximately $361 billion of U.S. auto and parts imports. While the tariffs may benefit import-competing U.S. producers, they are also likely to increase costs for downstream users of imported products and consumers. The Administration could be using the tariffs in part to pressure affected countries into broader trade negotiations, such as the U.S.-EU trade liberalization talks, but it is unclear what specific outcomes the Administration is seeking. Figure 1. Trump Administration Tariffs and Affected Imports / Source: CRS calculations with data from U.S. Census Bureau sourced through Global Trade Atlas. Notes: Based on 2017 import values. Increased U.S. import tariffs may reduce demand for imports lowering annual import values. The figure above includes all U.S. imports from China under HTS 85176200 ($22.9 billion in 2017). A portion of the products currently included in this category are excluded from the tariffs, but there is currently no statistical reporting number (HTS 10 digit code) for these excluded items such that CRS is unable to determine the portion of trade under this category that will be excluded. USITC is creating a new statistical reporting number, HTS 8517620090, to capture these excluded items. Retaliation may amplify the potential negative effects of the U.S. tariff measures. Retaliatory tariffs in effect cover almost $126 billion of U.S. annual exports, based on 2017 export data (Table 2). Economically, retaliatory tariffs broaden the scope of U.S. industries potentially harmed, targeting those reliant on export markets and sensitive to price fluctuations, such as agricultural commodities. Some U.S. manufacturers have announced plans to shift production to other countries in order to avoid the tariffs on U.S. exports. Lost market access resulting from the retaliatory tariffs may compound concerns raised by many U.S. exporters that the United States increasingly faces higher tariffs than some competitors in foreign markets as other countries proceed with trade liberalization agreements, such as the recently signed EU-Japan FTA. Adverse effects could grow if a tit-for-tat process of retaliation continues and the scale of trade affected increases. For example, the President stated that $267 billion of additional U.S. imports from China could face increased tariffs. China’s potential retaliation against another round of U.S. tariffs is limited by the fact that it has already imposed tariff increases on nearly all its U.S. imports, but it could further increase tariffs on the products it has already targeted or begin imposing nontariff measures such as informal pressure to limit U.S. multinational sales in China. New Section 232 actions by the Administration could result in larger potential trade effects. On March 23, 2018, the Commerce Department initiated a new Section 232 investigation on U.S. auto and auto parts imports. Motor vehicles and parts accounted for $361 billion of U.S. imports in 2017. The EU, which accounts for more than $50 billion of U.S. motor vehicle and parts imports, has reportedly threatened comparable retaliatory measures. The globally integrated nature of the industry could complicate the impact of the tariffs. For example, affiliates of foreign motor vehicle firms operating in the United States exported more than $49 billion (nearly $70 billion including wholesale trade) in 2015 (latest available data). Although the auto investigation remains ongoing, the Administration has stated it will not impose tariffs while the recently announced U.S.-EU trade talks are ongoing. On July 18, the Administration began a fourth Section 232 investigation on U.S. uranium imports. Many Members of Congress and U.S. businesses, interest groups, and trade partners, including major allies, have weighed in on the President’s actions. While some U.S. stakeholders support the President’s use of unilateral trade actions, many have raised concerns, including the chairs of the Ways and Means and Senate Finance Committees, about potential negative impacts. In July 2017, Congress passed a nonbinding resolution directing appropriations bill conferees to include language giving Congress a role in Section 232 determinations, and several Members have introduced legislation that would constrain the President’s authority (e.g., S. 3013 and S. 3266). As it debates the Administration’s import restrictions, Congress may consider the following: Delegation of Authority. Among these statutes, only Section 201 requires an affirmative finding by an independent agency (the ITC) before the President may restrict imports. Section 232 and Section 301 investigations are undertaken by the Administration, giving the President broad discretion in their use. Are additional congressional checks on such discretion necessary? Economic Implications and Escalation. The Administration’s tariffs imposed to date cover more than 10% of annual U.S. goods imports; pending investigations and threatened further counter-retaliations could potentially increase this to nearly 30%. While most economists estimate that the current level of tariffs is unlikely to have major effects on the overall U.S. economy, these effects may be substantial for individual firms reliant either on imports subject to the U.S. tariffs or exports facing retaliatory measures. The potential drag on economic growth could be significant if tit-for-tat action escalates. What are the Administration’s ultimate objectives from the tariff increases and do potential benefits justify potential costs? International Trading System. While the Administration argues that the imposition of U.S. import restrictions is within its rights under international trade agreement obligations, U.S. trade partners disagree and have initiated dispute proceedings, and begun retaliating. The United States has initiated its own dispute proceedings arguing that retaliatory countermeasures violate trade agreement obligations. What are the risks to the international trading system of continued unilateral action? Potential Trade Affected The tables below provide the range of potential trade volumes affected by the U.S. tariffs and trading partner retaliation. In addition to tariffs, the President has imposed quotas, or quantitative limits on U.S. imports of certain goods from specified countries, as well as tariff-rate quotas (TRQs), for which one tariff applies up to a specific quantity of imports and a higher tariff applies above that threshold. Table 1. U.S. Import Restrictions U.S. Trade Action U.S. Imports (millions, 2017) Additional Tariff Potential Annual Tariff Revenue (millions, 2017) Effective Date Section 201 Solar Cells/ Modules $5,196 TRQ (0%, 30%)/ 30% $1,559 Feb. 7, 2018 Large Washers/ Washer Parts $1,927 TRQ (20%, 50%)/ TRQ (0%, 50%) $964 Feb. 7, 2018 Total $7,123 $2,523 Section 232 Aluminum $16,643 10% $1,664 Mar. 23, 2018 Steel $23,369 25%a $6,140 Mar. 23, 2018 Total $40,012 $7,805 Section 301 China - Stage 1 $32,262 25% $8,066 July 6, 2018 China - Stage 2 $13,685 25% $3,421 Aug. 23, 2018 China - Stage 3 $188,897b 10%(2018) 25%(2019) $42,502c Sept. 24, 2018 Total $234,844 $53,989 Total in Effect $281,979 $64,316 Source: Calculations by CRS based on trade data from U.S. Census Bureau and tariff data from Administration notifications. Notes: Potential tariff revenue estimated using 2017 import values. This does not account for potential fluctuations in demand resulting from the tariffs or other variables. Increases in the price of goods resulting from the tariffs are likely to decrease demand for imports and therefore result in lower revenue collection than the estimated amounts. TRQ tariff revenue estimated assuming all imports are subject to over quota tariff. U.S. steel tariff is 50% on imports from Turkey. This includes all U.S. imports from China under HTS 85176200 ($22.9 billion in 2017). A portion of the products currently included in this category are excluded from the tariffs, but there is currently no statistical reporting number (HTS 10 digit code) for these excluded items such that CRS is unable to determine the portion of trade under this category that will be excluded. USITC is creating a new statistical reporting number, HTS 8517620090, to capture these excluded items moving forward. Annual total revenue estimate calculated with 2 months at 10% and 10 months at 25%. Table 2. Retaliatory Actions Retaliatory Trade Action U.S. Exports (millions, 2017) Additional Tariff Potential Annual Tariff Revenue (millions, 2017) Effective Date Section 201 South Korea (Solar and Washers) $1,377a TBD $474a 2021 China (Solar and Washers) $654a TBD $220a 2021 Japan (Solar) $83a TBD $25a 2021 Total $2,114 $719 Section 232 Canada $12,748 10-25% $1,920 July 1, 2018 Mexico $3,691 7-25% $730 Partial-June 5, Full-July 5, 2018 European Union (EU)—Stage 1 $3,204 10-25% $781 June 25, 2018 EU—Stage 2 $4,239 10-50% $931 2021 China $2,969 15-25% $645 Apr. 2, 2018 Japan $1,911a TBD $440a TBD Turkey $1,788 4-140%b $935 June 21, 2018b India $1,396 10-50% $240 Nov. 2, 2018 Russia $347 25-40% $105 Aug. 6, 2018c Russia—Stage 2 TBD TBD TBD 2021 Total $32,292 $6,727 Section 301 China—Stage 1 $33,834 25% $8,459 July 6, 2018 China—Stage 2 $14,108 25% $3,527 Aug. 23, 2018 China—Stage 3 $53,296 5%-10% $3,650 Sept. 24, 2018 Total $101,238 $15,636 Total in Effect $125,984 $20,752 Source: CRS calculations based on import data of U.S. trade partner countries sourced from Global Trade Atlas and tariff details from WTO or government notifications. Notes: Potential tariff revenue estimated using 2017 import values in dollars (foreign trade data converted to U.S. dollars based on monthly average exchange rates during the relevant time periods). This does not account for potential fluctuations in demand resulting from the tariffs or other variables. Increases in the price of goods resulting from the tariffs are likely to decrease demand for imports and therefore result in lower revenue collection than the estimated amounts. TRQ tariff revenue estimated assuming all imports are subject to over quota tariff. Retaliation announcements did not include a product list or specific tariff values. Retaliatory export and tariff value estimated based on retaliation commensurate with U.S. tariff actions. Turkey’s retaliatory tariffs have been in effect since June 2018. Turkey increased the tariff rates in August 2018 in response to the Trump Administration’s decision to increase the U.S. steel tariff on Turkish imports to 50%. Russia published its list of retaliatory tariff rates and products on July 6, 2018. The tariffs appear to go into effect within 30 days of publication.

Sep 24, 2018

Campaign Finance Law: An Analysis of Key Issues, Recent Developments, and Constitutional Considerations for Legislation

Federal campaign finance law is composed of a complex set of limits, restrictions, and requirements on money and other things of value that are spent or contributed in the context of federal elections. While the Federal Election Campaign Act (FECA, or Act) sets forth the statutory provisions governing this area of law, several Supreme Court and lower court rulings have had a significant impact on the Act’s regulatory scope. Most notably, since 2003, a series of Supreme Court decisions has invalidated several FECA provisions that were enacted as part of the Bipartisan Campaign Reform Act of 2002 (BCRA), and in 2010, the Court invalidated a long-standing prohibition on independent expenditures funded from the treasuries of corporations and labor unions. Generally, the Court has overturned such provisions as unconstitutional violations of First Amendment guarantees of free speech. As a foundational matter, FECA distinguishes between a contribution and an expenditure: a contribution involves giving money to an entity, such as a candidate’s campaign committee, while an expenditure involves spending money directly for advocacy of the election or defeat of a candidate. Generally, the Supreme Court has upheld limits on contributions, while invalidating limits on expenditures. FECA regulates campaigns in three primary ways: contribution limits, source restrictions, and disclosure and disclaimer requirements. Contribution Limits Contribution limits refer to how much a donor can contribute as well as how they can contribute. Contribution limits include specific limits on how much money a donor may contribute to a candidate, party, and political committee, which are known as base limits. FECA also provides for related restrictions, including the ban on contributions made through a conduit; the ban on converting campaign contributions for personal use; and the treatment of communications a donor makes in coordination with a candidate or party as contributions. While the Supreme Court has generally upheld base limits, the Court has struck down FECA’s aggregate limits, which capped the total amount of money a donor could contribute to all candidates, parties, and political committees; limits on contributions to candidates whose opponents self-finance; and limits on contributions by minors. In addition, based on Supreme Court precedent, an appellate court ruling provided the legal underpinning for the establishment of super PACs. Source Restrictions FECA contains several bans, referred to as source restrictions, on who may make campaign contributions. Source restrictions include the ban on corporate and labor union campaign contributions directly from treasury funds—although the Supreme Court has held that limits on corporate and labor union independent spending are unconstitutional, the Court has upheld limits on contributions. Source restrictions also include the ban on federal contractor contributions—known as the “pay-to-play” prohibition—which the U.S. Court of Appeals for the D.C. Circuit upheld against a First Amendment challenge in 2015; the ban on foreign national contributions and expenditures; and the restrictions on foreign national involvement in U.S. campaigns. Disclaimer and Disclosure Requirements FECA also sets forth disclaimer and disclosure requirements. FECA’s disclaimer requirements mandate that statements of attribution appear directly on campaign-related communications. FECA’s disclosure requirements mandate that political committees register with the Federal Election Commission (FEC) and comply with periodic reporting requirements. In addition, the law requires other entities—such as labor unions and corporations, including incorporated organizations that are tax-exempt under Section 501(c)(4) of the Internal Revenue Code—that make independent expenditures or electioneering communications to disclose information to the FEC. Generally, the Supreme Court has upheld the constitutionality of disclaimer and disclosure requirements against First Amendment challenges as substantially related to the governmental interest of safeguarding the integrity of the electoral process by promoting transparency and accountability. Criminal Penalties For knowing and willful violations of any provision of the Act, FECA sets forth criminal penalties, including specific penalties for violations of the prohibition on contributions made through a conduit. In most instances, the U.S. Department of Justice initiates the prosecution of criminal violations of FECA, but the law also provides that the FEC may refer an apparent violation to the Justice Department for criminal prosecution under certain circumstances.

Sep 24, 2018

Exchange-Traded Funds (ETFs): Issues for Congress

Exchange-traded funds (ETFs) are common ways for Americans to invest. An ETF is an investment vehicle that, similar to a mutual fund, offers public investors shares of a pool of assets; unlike a mutual fund, however, an ETF can be traded on exchanges like a stock. The catchall category of exchange-traded products (ETPs) includes all portfolio products that trade on exchanges. U.S. ETF domestic listings stand at more than $3.4 trillion, making ETFs among the most important investment methods and critical components of the financial system. The first U.S. ETF was introduced in 1993 to track the S&P 500 stock index. That was the first time a public investor could buy or sell a basket of stocks in a single publicly traded share. It was considered as one of the most important financial innovations in decades and one that transformed the asset management industry. In the ensuing 25 years, ETFs have grown to become a mainstream investment vehicle held by 6% of U.S. households and representing 30% of all U.S. equity trading, according to data from Investment Company Institute and iShares. The rapid growth of the ETF market has simultaneously elevated its importance in the global financial system and brought risk and regulatory considerations to the fore. A key consideration is ETFs’ behavior under market stress. ETFs drew media attention when market distress occurred in 2010, 2015, and 2018. These events have led to global discussions of ETFs’ effects on financial stability. Although the events did not seem to leave long-lasting impacts on financial markets, they revealed aspects of ETFs’ vulnerability that could not be observed under normal market conditions. Given ETFs’ scale of representation in financial markets, it is likely that they would be affected by any future financial crisis (e.g., their value would fall with the value of other assets), but it is uncertain whether ETFs would also amplify it. At the center of the debate over ETFs and financial stability is “liquidity mismatch,” which is often discussed under the context of the difficulty of buying and selling ETFs during a market downturn. This mismatch points to a relatively complex ETF operational structure that has generated misunderstanding. Not all ETFs are created equal. The majority of ETFs are “plain vanilla” index-tracking products that are considered lower risk. There is also a growing subset of complex, higher-risk ETFs that are sources of concern over financial stability and investor protection. To add to the confusion, the industry does not currently have a consistent naming convention to differentiate the types of products that vary in risk exposure. Lastly, despite ETFs’ common usage, the Securities and Exchange Commission (SEC) has not yet established a comprehensive listing standard. As such, each aspiring issuer must typically be approved by the SEC under an exemption to the Investment Company Act of 1940 and other securities regulations. The SEC proposed a new ETF approval process on June 28, 2018, that would replace individual exemptive orders with a single rule for plain vanilla ETFs. The proposed approach excludes certain higher-risk ETFs and mandates new disclosures and other conditions generally on index-based and actively managed ETFs.

Sep 24, 2018

The Supreme Court’s Overruling of Constitutional Precedent

By exercising its power to determine the constitutionality of federal and state government actions, the Supreme Court has developed a large body of judicial decisions, or “precedents,” interpreting the Constitution. How the Court uses precedent to decide controversial issues has prompted debate over whether the Court should follow rules identified in prior decisions or overrule them. The Court’s treatment of precedent implicates longstanding questions about how the Court can maintain stability in the law by adhering to precedent under the doctrine of stare decisis while correcting decisions that rest on faulty reasoning, unworkable standards, abandoned legal doctrines, or outdated factual assumptions. Although the Supreme Court has shown less reluctance to overrule its decisions on constitutional questions than its decisions on statutory questions, the Court has nevertheless stated that there must be some special justification—or, at least “strong grounds”—that goes beyond disagreeing with a prior decision’s reasoning to overrule constitutional precedent. Consequently, when deciding whether to overrule a precedent interpreting the Constitution, the Court has historically considered several “prudential and pragmatic” factors that seek to foster the rule of law while balancing the costs and benefits to society of reaffirming or overruling a prior holding: Quality of Reasoning. When determining whether to reaffirm or overrule a prior decision, the Supreme Court may consider the quality of the decision’s reasoning. Workability. Another factor that the Supreme Court may consider when determining whether to overrule a precedent is whether the precedent’s rules or standards are too difficult for lower federal courts or other interpreters to apply and are thus “unworkable.” Inconsistency with Related Decisions. A third factor the Supreme Court may consider is whether the precedent departs from the Court’s other decisions on similar constitutional questions, either because the precedent’s reasoning has been eroded by later decisions or because the precedent is a recent outlier when compared to other decisions. Changed Understanding of Relevant Facts. The Supreme Court has also indicated that changes in how the Justices and society understand a decision’s underlying facts may undermine a precedent’s authoritativeness, leading the Court to overrule it. Reliance. Finally, the Supreme Court may consider whether it should retain a precedent, even if flawed, because overruling the decision would injure individuals, companies, or organizations; society as a whole; or legislative, executive, or judicial branch officers, who had relied on the decision. A survey of Supreme Court decisions applying these factors suggests that predicting when the Court will overrule a prior decision is difficult. This uncertainty arises, in part, because the Court has not provided an exhaustive list of the factors it uses to determine whether a decision should be overruled or how it weighs them. The Appendix to this report lists Supreme Court decisions on constitutional law questions that the Court has overruled during its more than 225-year history.

Sep 24, 2018

Land and Water Conservation Fund (LWCF): Frequently Asked Questions Related to Provisions Scheduled to Expire on September 30, 2018

Sep 21, 2018

Overview of the Global Humanitarian and Displacement Crisis

Sep 20, 2018

Research Evidence on the Impact of Work Requirements in Need-Tested Programs

Congress is debating work requirements for recipients in programs providing need-tested assistance to low-income families and individuals. Legislation before the 115th Congress—the House-passed version of H.R. 2—would expand work requirements in the Supplemental Nutrition Assistance Program (SNAP). H.R. 5861, reported to the House from the Ways and Means Committee, would alter some of the Temporary Assistance for Needy Families (TANF) program’s rules regarding work. In addition, the Trump Administration is currently granting demonstration waivers for states to implement work requirements for certain recipients of Medicaid, and it has proposed expanded work requirements for tenants in assisted housing. Work requirements for recipients of government assistance seek to achieve a variety of policy goals, including promoting work, reducing assistance caseloads, and improving the economic status of individuals and families. What does the research evidence indicate about the impact of work requirements? The impact of a policy is the difference it makes. Most of the research that addresses work requirements and need-tested assistance comes from a set of experiments, conducted prior to the 1996 welfare reform law, on alternative approaches to the work and education provisions in TANF’s predecessor program, Aid to Families with Dependent Children (AFDC). The pre-1996 welfare-to-work experiments provided evidence that, for mostly nonworking single mothers, work requirements combined with employment and education services could increase employment, increase wages, and reduce assistance payments. Such programs—without supplementing earnings—did not raise incomes. A subset of experiments on programs that combined work requirements, employment and education services, and continued earnings supplements found that some programs increased incomes, but when they did, they did not reduce the amount of government assistance provided to the family. However, the findings from the pre-1996 experiments cannot be automatically applied to TANF. TANF was implemented differently than the pre-1996 experiments. As Congress debates work requirements in SNAP, Medicaid, and housing assistance, there is no large accumulated research base to draw from that applies to these three programs. Given the differences in populations, presence of those in the programs who are already working, goals, and funding structures for employment and education services, the findings of the pre-1996 welfare-to-work experiments cannot be directly applied to the current debate. Different populations. These three programs serve a broader population (including men, single persons, and childless couples) than did the evaluated pre-1996 experiments (mostly nonworking single mothers), with potentially different challenges. Different goals. SNAP, Medicaid, and housing assistance include populations that are already working. Applying work requirements to recipients who are working implies different policy goals than that of moving nonworking recipients into work. The goal of the Medicaid waivers that include work requirements is to improve the health status of recipients, a different purpose, with different outcomes, than the goals tested in the pre-1996 experiments. Different approaches to employment and education services. The pre-1996 experiments were of mandatory welfare–to-work programs, which combined a participation requirement with a program that funded employment or education services. Among the SNAP, Medicaid, and housing programs, only SNAP has an employment and training program.

Sep 20, 2018

Consumer Protections in Private Health Insurance for Individuals with Preexisting Health Conditions

Individuals with preexisting health conditions may have concerns about practices in the private health insurance market in which insurers use medical underwriting to assess their risk of offering health insurance to applicants. Before full implementation of the Affordable Care Act’s (ACA’s; P.L. 111-148, as amended) insurance reforms, subject to certain exceptions, insurers generally were permitted to consider health factors in determining the offer of insurance, its price, and covered health services. Although references to individuals with preexisting conditions commonly focus on the possibility of denial of insurance, they also pertain to the offer of insurance that is more expensive on the basis of health factors and to insurance that excludes health services to treat preexisting conditions. Current Law Current federal law prohibits those insurer practices from most (but not all) private health plans. Guaranteed issue, adjusted community rating, and coverage of preexisting health conditions provide consumer protections related to the offer, price, and scope of insurance, respectively. These provisions are included in the ACA, but their applicability varies across different types of health plans, such as individual vs. group, small group vs. large group, and so on. (The ACA also requires the coverage of essential health benefits in the individual and small-group markets, and the range of covered benefits may be a factor in an individual’s decision to purchase insurance. However, this discussion focuses on the key consumer protections that prohibit differentiating individuals with preexisting health conditions from otherwise healthy insurance applicants.) For more information about these and other federal requirements applicable to private plans, see CRS Report R45146, Federal Requirements on Private Health Insurance Plans. Consumer Protections Established Prior to the ACA A number of federal health insurance requirements established prior to the ACA provided protections to individuals with preexisting conditions. Almost all pre-ACA consumer protections applicable to private health insurance were established under the Health Insurance Portability and Accountability Act (HIPAA; P.L. 104-191). (ACA revisions to HIPAA-established provisions took many forms; HIPAA language was struck and replaced, renumbered, expanded, or left alone.) Specifically, HIPAA’s preexisting condition protections applied to the individual health insurance market under limited circumstances and to a greater degree in the group market (see Table 1). Table 1. Selected HIPAA Provisions Applicable to Individual and Group Health Plans HIPPA Provision Individual Health Plans Group Health Plans Guaranteed Issue HIPAA eligibles onlya All small groups Prohibit Health Discrimination in Eligibility n/a All groups—across similarly situated individualsb Prohibit Health Discrimination in Premiums n/a All groups—across similarly situated individuals Coverage of Preexisting Health Conditions HIPAA eligibles only—prohibit coverage exclusions All groups—allow coverage exclusions for a limited duration Source: CRS Report RL31634, The Health Insurance Portability and Accountability Act (HIPAA) of 1996: Overview and Guidance on Frequently Asked Questions. HIPAA eligibles refers to individuals who meet certain requirements to be eligible for HIPAA protections. Similarly-situated individuals are employees who are part of the same “bona fide employment-based classification”; such classifications include part-time vs. full-time status, different workplace locations, length of employment, and so on. See 29 C.F.R. §2590.702(d). In addition to federal protections, states enacted preexisting condition protections prior to ACA enactment, particularly targeting the individual and small-group markets. These protections varied across states. For example, in 2008, 7 states prohibited the use of health factors in determining premiums in the individual health insurance market, another 11 states allowed health factors to be used in premium development but limited the effects of such factors, and the remaining 32 states and the District of Columbia (DC) allowed health factors to be used to develop premiums with no specified limitations. In the small-group market, in 2009, 12 states prohibited the use of health factors, 35 states allowed limited use of health factors, and 3 states and DC allowed unlimited use of health factors. Likewise, guaranteed issue and preexisting condition coverage provisions varied by state prior to the ACA. Since enactment of the ACA, some states have enacted provisions to partially or completely align with the federal requirements, but such state action has not been uniform. Therefore, current state health insurance requirements are a mix of pre- and post-ACA enacted provisions. Recent Developments Policy and legal developments this past year have refocused attention on preexisting conditions in the press and in policy circles. For example, the Trump Administration has taken actions to support health plans that are largely exempt from federal law, such as promulgation of a final rule regarding short-term, limited-duration insurance. Although such insurance is “primarily designed to fill temporary gaps in coverage,” which may benefit individuals transitioning from one health plan to another, extension of the duration of such plans has raised questions about their value to individuals with preexisting (or newly developed) health conditions. Plaintiffs in a current federal lawsuit argue that Congress lacks the authority to impose an “individual mandate” to purchase health insurance and seek invalidation of the entire ACA. Further, the Department of Justice (DOJ) submitted a brief in which DOJ maintains that “the individual mandate is not severable from the ACA’s guaranteed-issue and community-rating requirements” but is severable from the rest of the ACA; DOJ seeks to strike down provisions related only to those three requirements. Future administrative and judicial developments may raise questions about the applicability and enforcement of consumer protections for individuals with preexisting health conditions. A decision in the federal lawsuit is anticipated following oral arguments heard on September 5, 2018. Congress and states may undertake legislative activity to address preexisting condition protections. In the meantime, uncertainty in the regulatory environment may affect the process (currently under way) for reviewing and approving exchange health plans, which subsequently may affect the types of and prices for plans offered in 2019.

Sep 20, 2018

Expedited Removal of Aliens: Legal Framework

The federal government has broad authority over the admission of non-U.S. nationals (aliens) seeking to enter the United States. The Supreme Court has repeatedly held that the government may exclude such aliens without affording them the due process protections that traditionally apply to persons physically present in the United States. Instead, aliens seeking entry are entitled only to those procedural protections that Congress has expressly authorized. Consistent with this broad authority, Congress established an expedited removal process for certain aliens who have arrived in the United States without permission. In general, aliens whom immigration authorities seek to remove from the United States may challenge that determination in administrative proceedings with attendant statutory rights to counsel, evidentiary requirements, and appeal. Under the streamlined expedited removal process created by the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 and codified in Section 235(b)(1) of the Immigration and Nationality Act (INA), however, certain aliens deemed inadmissible by an immigration officer may be removed from the United States without further administrative hearings or review. INA Section 235(b)(1) applies only to certain aliens who are inadmissible into the United States because they either lack valid entry documents or have attempted to procure their admission through fraud or misrepresentation. The statute generally permits the government to summarily remove those aliens if they are arriving in the United States. The statute also authorizes, but does not require, the government to apply this procedure to aliens who are inadmissible on the same grounds if they have been physically present in the country for less than two years. As a matter of practice, however, immigration authorities have applied expedited removal in more limited fashion than potentially authorized by statute—in general, the process is applied strictly to (1) arriving aliens apprehended at a designated port of entry; (2) aliens who arrived in the United States by sea without being admitted or paroled into the country by immigration authorities, and who have been physically present in the United States for less than two years; or (3) aliens who are found in the United States within 100 miles of the border within 14 days of entering the country, who have not been admitted or paroled into the United States by immigration authorities. Nevertheless, expedited removal accounts for a substantial portion of the alien removals each year. And in January 2017, President Trump issued an executive order directing the Department of Homeland Security to expand expedited removal within the broader framework of INA Section 235(b)(1). The agency has yet to promulgate regulations implementing this directive. In some circumstances, however, an alien subject to expedited removal may be entitled to certain procedural protections before he may be removed from the United States. For example, an alien who expresses a fear of persecution may obtain administrative review of his claim, and if his fear is determined credible the alien will be placed in formal removal proceedings where he can pursue asylum and related protections. Additionally, an alien may seek administrative review of a claim that he is a U.S. citizen, lawful permanent resident, admitted refugee, or asylee. Unaccompanied alien children also are statutorily exempted from expedited removal. Given the streamlined nature of expedited removal and the broad discretion afforded to immigration officers to implement that process, challenges have been raised contesting the procedure’s constitutionality. In particular, some have argued that the procedure violates aliens’ due process rights because aliens placed in expedited removal do not have the opportunity to seek counsel or contest their removal before a judge or other arbiter. Reviewing courts have largely dismissed such challenges for lack of jurisdiction, or, in the alternative, rejected the claims on the grounds that aliens seeking entry into the United States generally do not have constitutional due process protections. But such cases have concerned aliens arriving at the U.S. border or designated ports of entry, and such aliens may be entitled to lesser constitutional protections than aliens located within the United States. Expanding the expedited removal process to aliens located within the interior could compel courts to tackle questions involving the relationship between the federal government’s broad power over the entry and removal of aliens and the due process rights of aliens located within the United States.

Sep 19, 2018

Immigration: Frequently Asked Questions about “Public Charge”

Immigration law in the United States has long contained exclusion and removal provisions designed to limit government spending on indigent non-U.S. nationals (aliens). Under the Immigration and Nationality Act (INA), an alien may be denied admission into the United States or adjustment to lawful permanent resident (LPR) status if he or she is “likely at any time to become a public charge.” An admitted alien may also be subject to removal from the United States based on a separate public charge ground of deportability, but this ground is rarely employed. Certain categories of aliens, such as refugees and asylees, are exempted from application of the public charge grounds. The Department of Homeland Security (DHS) and the Department of State (DOS) have primary responsibility for implementing the INA’s public charge provisions. DHS’s U.S. Citizenship and Immigration and Services may make a public charge determination when an alien applies to adjust to LPR status. Abroad, DOS consular officers may make a public charge determination when an alien applies for a visa. Although the INA does not explicitly define the term “public charge,” since 1999, agency guidance has defined it to mean a person who is or is likely to become “primarily dependent” on “public cash assistance for income maintenance” or “institutionaliz[ed] for long-term care at government expense.” However, new public charge rules for DHS are expected to be published in the Federal Register, according to the Unified Agenda of the Office of Management and Budget (OMB). In addition, in January 2018, DOS revised the Foreign Affairs Manual (FAM) to instruct consular officers to consider a wider range of public benefits when determining whether visa applicants who have received or are currently receiving benefits are inadmissible on public charge grounds. This report provides answers to frequently asked questions about current public charge policy, including the sources of laws that govern public charge determinations, who is subject to determinations, factors that are considered in determinations, and the consequences of determinations.

Sep 19, 2018

Intellectual Property Law: A Brief Introduction

Sep 19, 2018

Long-Tenured Displaced Workers

Sep 19, 2018

The Palestinians: Overview, Aid, and U.S. Policy Issues

Sep 18, 2018

China’s Engagement with Latin America and the Caribbean

Sep 18, 2018

Trade Adjustment Assistance for Workers (TAA)

Sep 17, 2018

Farm Bill Primer: Federal Crop Insurance

Sep 17, 2018

Greenhouse Gas Emissions and Sinks in U.S. Agriculture

Sep 17, 2018

Prospects for U.S.-Saudi Nuclear Energy Cooperation

Sep 17, 2018