CRS Reports

Federal Reserve: Monetary Policy Actions in Response to COVID-19

The Federal Reserve (Fed) has taken a number of steps to promote economic and financial stability in response to the coronavirus pandemic (COVID-19). This Insight covers actions related to monetary policy—actions intended to lower interest rates or increase overall liquidity. Due to the severity of economic disruption, actions that increase overall liquidity have not been sufficient to maintain financial stability, and the Fed has also directly lent to firms and purchased private securities. Direct Fed lending and other financial assistance in response to COVID-19 is covered in CRS Insight IN11327, Federal Reserve: Emergency Lending in Response to COVID-19, by Marc Labonte. Actions to Lower Interest Rates Federal Funds Rate Traditionally, the Fed conducts monetary policy by changing the federal funds rate, the overnight interbank lending rate. In response to COVID-19, on March 3, the Fed reduced the federal funds rate from a range of 1.5%-1.75% to a range of 1%-1.25% to stimulate economic activity. On March 15, it reduced the range to 0%-0.25%. Economists refer to this as the “zero lower bound” to signify that the Fed’s traditional monetary policy tool has been exhausted at this point, and cannot be used to provide additional stimulus. This is the second time this interest rate has ever hit the zero lower bound—the first time was during the 2008 financial crisis. Lower interest rates stimulate interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, lower rates cause capital outflows that put downward pressure on the dollar exchange rate, which in turn stimulates spending on exports and imports. Through these channels, monetary policy can be used to stimulate overall spending in the short run. During the 2008 financial crisis, the Fed developed two other tools to provide stimulus at the zero lower bound—forward guidance and quantitative easing. Both aim to reduce long-term interest rates, which—unlike short-term rates—are not directly determined by the Fed, but are important for stimulating economic activity. These tools are being revived in response to COVID-19. Forward Guidance Forward guidance refers to Fed public communications on its future plans for short-term interest rates, and it took many forms following the 2008 financial crisis. As monetary policy returned to normal in recent years, forward guidance was phased out. It is being used again during COVID-19. For example, when the Fed reduced short-term rates to zero on March 15, it announced that it “expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Quantitative Easing Large-scale asset purchases, popularly referred to as quantitative easing or QE, were also used during the financial crisis. Under QE, the Fed expanded its balance sheet by purchasing securities. Three rounds of QE from 2009 to 2014 increased the Fed’s securities holdings by $3.7 trillion. On March 23, the Fed announced that it would increase its purchases of Treasury securities and mortgage-backed securities (MBS)—including commercial MBS—issued by government agencies or government-sponsored enterprises to “the amounts needed to support smooth market functioning and effective transmission of monetary policy.” These would be undertaken at the unprecedented rate of up to $125 billion daily starting on March 23. As a result, the Fed’s balance sheet is now larger than its post-2008 financial crisis peak of $4.5 trillion. One notable difference from previous rounds of QE is that the Fed is purchasing securities of different maturities, so the effect likely will not be concentrated on long-term rates. Actions to Provide Liquidity In normal conditions, liquidity is plentiful, meaning financial firms can easily borrow at reasonable interest rates. Financial uncertainty, such as that caused by COVID-19, can cause liquidity to dry up. At any given interest rate, the Fed has tools to increase or decrease the overall availability of liquidity in financial markets. Reserve Requirements On March 15, the Fed announced that it was reducing reserve requirements—the amount of vault cash or deposits at the Fed that banks must hold against deposits—to zero for the first time ever. As the Fed noted in its announcement, because bank reserves are currently so abundant, reserve requirements “do not play a significant role” in monetary policy. Repo Operations The Fed can temporarily provide liquidity to financial markets by lending cash through repurchase agreements (repos) with primary dealers (i.e., large government securities dealers who are market makers). Before the 2008 financial crisis, this was the Fed’s routine method for targeting the federal funds rate. Following this, the Fed’s large balance sheet meant that repos were no longer needed, until they were revived in September 2019 in response to a spike in repo rates. On March 15, the Fed announced it would regularly offer overnight and longer-terms repos of $500 billion, which have been continued to date since March 12. These repos are larger and longer-lasting than those offered since September 2019. Foreign Central Bank Swap Lines Both domestic and foreign commercial banks rely on short-term borrowing markets to access U.S. dollars needed to fund their operations and meet their cash flow needs. But in an environment of strained liquidity, only banks operating in the United States can access the discount window. Therefore, the Fed has standing “swap lines” with major foreign central banks to provide central banks with U.S. dollar funding that they can in turn lend to private banks in their jurisdictions. On March 15, the Fed reduced the cost of using those swap lines, and on March 19 it extended swap lines to nine more central banks. Use of the swap lines quickly exceeded their use during the euro crisis. On March 31, the Fed created the Foreign and International Monetary Authorities Repo Facility to allow foreign central banks to temporarily swap Treasury Securities for U.S. dollars.

Apr 13, 2020

CARES Act Assistance for Employers and Employees—The Paycheck Protection Program, Employee Retention Tax Credit, and Unemployment Insurance Benefits: Overview (Part 1)

The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) includes numerous provisions to assist employers and employees during the COVID-19 economic downturn. This Insight compares (1) SBA’s Paycheck Protection Program; (2) the employee retention tax credit; and (3) Unemployment Insurance. A companion Insight, CRS Insight IN11329, CARES Act Assistance for Employers and Employees—The Paycheck Protection Program, Employee Retention Tax Credit, and Unemployment Insurance Benefits: Assessment of Alternatives (Part 2), coordinated by Molly F. Sherlock, highlights factors employers might consider in choosing which program offers them the best support. Small Business Administration (SBA) Paycheck Protection Program (PPP) Loans Lenders can issue Paycheck Protection Program (PPP) loans to assist eligible borrowers to pay certain payroll and operating costs for a period of eight weeks. These covered loans have a 100% SBA loan guarantee and charge no borrower’s fees. The loans will have a two-year term and 1.0% interest rate. No interest or principal payments are required for the first six months. The covered period runs from February 15, 2020, through June 30, 2020. The CARES Act authorized $349 billion in PPP loans, and they are available on a first-come, first-served basis. Who is Eligible? Eligible borrowers generally include small businesses defined as either businesses that have 500 or fewer employees or that meet the general size standards under the Small Business Act (with special rules for businesses in the accommodation and food services industry), sole proprietors and independent contractors (with no employees), 501(c)(3) nonprofit organizations (with 500 employees or fewer), and 501(c)(19) veterans organizations (with 500 employees or fewer). Benefit Amount: A borrower may generally apply for a PPP loan amount up to the lesser of 2.5 times the average total monthly payments by the applicant for “payroll costs” incurred during the preceding one-year period, or $10 million. Proceeds of PPP loans can be used to cover “payroll costs,” plus other enumerated expenses (e.g., rent, utilities, interest on loans). Payroll costs are capped at $100,000 on an annualized basis per employee. Interim final regulations state that no more than 25% of the loan may be used for nonpayroll costs. PPP loans can be forgiven if the borrower maintains its number of full-time equivalent employees and does not reduce their compensation by more than 25% during the eight-week period after the loan’s origination date. Otherwise, the amount of forgiveness is reduced by those measures, relative to base periods specified in the act. Currently, there is not SBA guidance on how these formulas would apply to loans taken out by sole proprietors or independent contractors with no employees. Loan forgiveness is excluded from gross income for tax purposes. Interaction with Other Programs: Employers taking a PPP loan cannot claim an employee retention tax credit. Employee Retention Tax Credit The employee retention tax credit (ERTC) is a refundable tax credit that reduces an employer’s payroll taxes. The credit can be claimed for wages paid after March 12, 2020, and before January 1, 2021. Who is Eligible? Eligible employers are those who are required to fully or partially suspend operations due to a COVID-19-related order (including nonprofit employers); or have gross receipts 50% less than gross receipts in the same quarter in the prior calendar year. Wages used to determine the credit depend on the number of employees the employer had during 2019. If the employer had more than 100 full-time employees, qualified wages are wages paid to employees who are not providing services (i.e., not working). If the employer had 100 or fewer full-time employees, all employee wages paid by eligible employers are credit-eligible. Government employers and self-employed individuals are generally ineligible. Benefit Amount: Tax credit of 50% of up to $10,000 in wages paid (maximum tax credit of $5,000). Interaction with Other Programs: Employers receiving a PPP loan cannot claim the ERTC. Unemployment Insurance The CARES Act Unemployment Insurance (UI) provisions provide federally funded income support to unemployed individuals by temporarily (1) augmenting all weekly UI benefit payments by $600/week; (2) expanding UI benefit eligibility; and (3) providing an additional 13 weeks of benefits to regular Unemployment Compensation (UC) exhaustees; among other provisions. Additionally, in states that have Short-Time Compensation (STC, also known as work-sharing) programs, workers whose hours are reduced (in lieu of layoffs) under these formal work-sharing plans may be compensated with STC, which is a regular UC benefit that has been prorated for the partial work reduction. The CARES Act temporarily pays 100% of benefits (50% if the state creates a temporary STC program) if employers have a formal STC agreement with a state when employee hours are reduced. $600/Week Federal Pandemic Unemployment Compensation (FPUC) Who is Eligible: Unemployed individuals receiving any UI benefit, including UC, Extended Benefits (EB), and the temporary benefits discussed below. Benefit Amount and Duration: $600/week; federally financed; authorized in each state after signing an agreement to administer the program (beginning the week after March 24, 2020) through July 31, 2020. No retroactive payments. No payments for weeks of unemployment after July 31, 2020. Interaction with Other Programs: FPUC augments all weekly UI benefits, including UC, EB, and all temporary UI programs discussed below. Expanded UI Eligibility: Pandemic Unemployment Assistance (PUA) Who is Eligible? Unemployed individuals who (1) are ineligible for any other state or federal UI benefit; (2) meet conditions related to being unemployed, partially unemployed, or unable to work due to COVID-19; and (3) are not able to telework and not receiving any paid leave. Eligibility includes those unemployed individuals who were self-employed, independent contractors, or gig economy workers. Benefit Amount and Duration: PUA provides up to 39 weeks of federally financed UI benefits to unemployed workers. PUA is payable for weeks of unemployment beginning on or after January 27, 2020, and ending on or before December 31, 2020 (and may be paid retroactively). The PUA benefit amount is calculated under state UI law based on recent earnings (subject to the minimum benefit under Disaster Unemployment Assistance [DUA], which is half of the state’s average weekly benefit amount). Interaction with Other Programs: All PUA benefits are augmented weekly by the $600 FPUC for weeks of unemployment beginning after March 27, 2020, through July 2020. The maximum duration of PUA is reduced by weeks of certain UI benefits payable to an individual, including UC and EB. Additional 13 Weeks of Benefits for UI Exhaustees: Pandemic Emergency Unemployment Compensation (PEUC) Who is eligible? Unemployed individuals who exhaust regular state and federal UI benefits (and are able, available, and actively seeking work, subject to COVID-19-related flexibilities), through the end of December 2020. Benefit Amount? The PEUC benefit amount is identical to the regular UC benefit and is calculated under state law based on recent earnings. Interaction with Other Programs: PEUC benefits are augmented weekly by the $600 FPUC through July 2020. PEUC is paid out after exhaustion of regular UC and before any EB. Only permanent law UI programs (regular UC and EB) are available after the last full week in December 2020. Federal Cost Sharing of Short-Time Compensation (STC) Who is eligible? Workers with reduced hours if employer has STC agreement with state. Benefit Amount? Prorated UC benefit based upon percentage of usual work hours. Interaction with Other Programs: STC-based UC benefits, like all UC benefits, are augmented weekly by the $600 FPUC through July 2020. Because the CARES Act temporarily funds 100% of STC-based UC benefit in states with permanent STC programs (50% in temporary STC states), states have the option to noncharge employers, thereby mitigating an employer’s potential State Unemployment Tax (SUTA) increase. Federal cost-sharing of STC benefits is available from March 27, 2020, through December 31, 2020.

Apr 10, 2020

State and Local Government Debt and COVID-19

Apr 10, 2020

Federal Reserve: Emergency Lending in Response to COVID-19

The coronavirus (COVID-19) has created significant economic and financial disruption. In response, the Federal Reserve (Fed) has taken a number of actions to promote economic and financial stability. This Insight covers actions taken by the Fed in its “lender of last resort” role—actions intended to provide liquidity directly to firms to ensure they have continued access to needed funding. The Fed finances this assistance by expanding its balance sheet. For information on the Fed’s monetary policy actions in response to COVID-19, see CRS Insight IN11330, Federal Reserve: Monetary Policy Actions in Response to COVID-19, by Marc Labonte. Discount Window In a March 15 announcement, the Fed encouraged banks (insured depository institutions) to borrow from the Fed’s discount window to meet their liquidity needs. This is the Fed’s traditional tool in its lender of last resort function. Discount window lending is negligible in normal conditions, but has surged since March. The Fed also encouraged banks to use intraday credit available through the Fed’s payment systems as a source of liquidity. Emergency Credit Facilities In 2008, the Fed created a series of emergency credit facilities to support liquidity in the nonbank financial system. This extended the Fed’s traditional role as lender of last resort from the banking system to the overall financial system for the first time since the Great Depression. To create these facilities, the Fed relied on its emergency lending authority (Section 13(3) of the Federal Reserve Act). This authority, amended by the Dodd-Frank Act (P.L. 111-203), places a number of restrictions on the Fed, including that the facilities can only operate in “unusual and exigent circumstances.” Emergency authority was not used again until 2020. To date, the Fed has created nine emergency facilities—some new, and some reviving 2008 facilities—in response to COVID-19: On March 17, the Fed announced it would revive the commercial paper funding facility (CPFF) to purchase commercial paper, which is an important source of short-term funding for financial firms, nonfinancial firms, and asset-backed securities (ABS). On March 17, the Fed announced it would revive the primary dealer credit facility (PDCF), which is akin to a discount window for primary dealers. Like banks, primary dealers are heavily reliant on short-term lending markets in their role as securities market makers. Unlike banks, they cannot access the discount window. Like the discount window, the PDCF provides short-term, fully collateralized loans to primary dealers. On March 19, the Fed announced it would create the Money Market Mutual Fund Liquidity Facility (MMLF), similar to a facility created to stop a run on money markets in 2008. The MMLF makes loans to financial institutions to purchase assets that money market funds are selling to meet redemptions. On March 23, the Fed announced two new facilities to support corporate bond markets—the Primary Market Corporate Credit Facility (PMCCF) to purchase newly issued corporate debt and the Secondary Market Corporate Credit Facility (SMCCF) to purchase existing corporate debt on secondary markets. On March 23, the Fed announced it would revive the Term Asset-Backed Securities Loan Facility (TALF) to make nonrecourse loans to private investors to purchase ABS backed by various nonmortgage consumer loans. On April 6, the Fed announced the Payroll Protection Program Lending Facility (PPPLF) to provide credit to depository institutions (e.g., banks) making loans under the CARES Act (H.R. 748/P.L. 116-136) Payroll Protection Program. Because banks are not required to hold capital against these loans, this facility increases lending capacity for banks facing high demand to originate these loans. The PPP provides low-cost loans to small businesses to pay employees. These loans do not pose credit risk to the Fed because they are guaranteed by the Small Business Administration. On April 9, the Fed announced the Main Street Lending Program (MSLP), which lends to depository institutions to make loans to businesses with up to 10,000 employees or up to $2.5 billion in revenues. The loans to businesses would defer principal and interest repayment for one year, and the businesses would have to make a “reasonable effort” to retain employees. On April 9, the Fed announced the Municipal Liquidity Facility (MLF) to purchase state and municipal debt in response to higher yields and lower liquidity in that market. The facility will only purchase debt of larger counties and cities. Some programs were announced with an overall size limit (see Table 1), although in 2008, actual activity typically did not match the announced size. These facilities go beyond the scope of the 2008 facilities to assist nonfinancial businesses and states and municipalities, as well as nonbank financial firms. In some programs, the Fed purchases securities in affected markets directly. In other programs, the Fed makes loans to financial institutions or investors to intervene in affected markets; these loans are typically made on attractive terms to incentivize activity, including by shifting the credit risk to the Fed. Many of these facilities are structured as Fed-controlled special purpose vehicles because of restrictions on the types of securities that the Fed can purchase. The Fed typically charges an interest rate that would be above-market in normal conditions and fees to compensate for risk. To varying degrees, the Fed is protected from losses by limiting eligibility to highly rated borrowers and requiring collateral to be pledged in case of default. Although there were no losses from these facilities after the 2008 financial crisis, assets from the Treasury’s Exchange Stabilization Fund (ESF) have been pledged to backstop any losses on several of the facilities today. Title IV of the CARES Act appropriated $500 billion to the ESF, of which at least $454 billion is available to support Fed programs. To date, $215 billion has been pledged to these programs (see Table 1). The CARES Act places certain restrictions on the Fed programs, such as conflict of interests and oversight requirements. Table 1. Federal Reserve Emergency Programs (billions of dollars) Announced-Size Limit CARES Act Funds Pledged CPFF n/a $10 PDCF n/a $0 MMLF n/a $10 PMCCF/SMCCF $750 $75 TALF $100 $10 PPPLF n/a $0 MSLP $600 $75 MLF $500 $35 Total n/a $215 Source: Congressional Research Service. Note: See text for details.

Apr 10, 2020

COVID-19 and Direct Payments to Individuals: Federal Tax Offset for Past-Due Child Support

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136, enacted March 27, 2020) includes direct payments to individuals in 2020—referred to by the Internal Revenue Service (IRS) as “economic impact payments.” These payments are structured as tax credits automatically advanced to households that meet certain criteria. Section 2201(d) of the CARES Act provides that these payments cannot be offset for past due debts to federal agencies, past due state income tax debt, or unemployment compensation debt, but it does not exempt those payments from offset for past-due child support for cases enforced by the Child Support Enforcement (CSE) program. As of the date of this Insight, the federal Office of Child Support Enforcement (OCSE) has not provided public guidance as to the offset procedures that are to be used for these payments. To provide context for the process that ultimately is used, this Insight provides a brief summary of how the federal tax refund offset mechanism currently operates, and historical background on how it was used to withhold past-due child support from similar direct payments to individuals—the 2008 IRS economic stimulus payments. According to OCSE, the offset of these payments resulted in an additional $863 million in collections in processing year 2008, which was an 88.4% increase relative to 2007. The offset of CARES Act direct payments to individuals might also be expected to result in increased collections for past-due child support though the CSE program. Overview of the CSE Federal Tax Offset All 50 states, the District of Columbia, Guam, Puerto Rico, the Virgin Islands, and 60 tribal nations operate CSE programs pursuant to Title IV-D of the Social Security Act. The program is federally administered by OCSE in the Administration for Children and Families (Department of Health and Human Services). The program is estimated to handle the majority of all child support cases; the remaining cases are handled by private attorneys, collection agencies, or through mutual agreements between parents. In FY2018, the program served 14.7 million children (about 20% of children in the United States) and collected an estimated $34 billion in child support, of which $7.7 billion was for obligations that were past-due (“arrears”). The amount of arrears paid were about 7% of the $118.1 billion in cumulative arrears owed to cases enforced by the program. One of the enforcement methods available to the CSE program for collecting past-due support is intercepting federal income tax refunds pursuant to Section 464 of the Social Security Act, and Section 6402(c) of the Internal Revenue Code. For a refund to be subject to the “tax offset,” the child support arrears owed by a child support obligor (which may be combined from multiple cases for the same obligor) must be at least $150 for cases where the custodial family receives cash payments under the Temporary Assistance for Needy Families (TANF) program or where the child receives assistance through the IV-E foster care program, or $500 for all other types of child support cases. In FY2018, the tax offset mechanism is estimated to have yielded $1.6 billion in collections. The tax offset mechanism, which is part of the Federal Collections and Enforcement Program, operates through a partnership between OCSE and the Department of the Treasury. According to OCSE, after it transmits to the Treasury information on qualifying obligors, those obligors are sent a Pre-Offset Notice that includes the amount of arrears that are owed at that time of the notice and how to contest that amount. When the Treasury ultimately processes the refund and intercepts the past-due support, it notifies the obligor of the offset and sends the funds to the relevant state child support program via OCSE. The amount that is offset may be based on more up-to-date information about the arrears that are owed than the amount listed in the Pre-Offset Notice. When the state CSE program receives the offset—usually within two or three weeks of the intercept—it may wait to disburse the funds for up to six months from when they were withheld from a joint tax return. Non-obligated spouses may file an Injured Spouse Allocation Form 8379 with the IRS in order to recoup their portion of the refund. Tax Offset and the 2008 IRS Economic Stimulus Payments The Economic Stimulus Act of 2008 (P.L. 110-185, enacted February 13, 2008), provided for direct payments to individuals that, like those in the CARES Act, were also structured as advanced refundable tax credits (“economic stimulus payments”). Nothing in the act exempted these payments from the tax offset provisions under Internal Revenue Code Section 6402, including those that apply in cases of past-due child support. An OCSE Dear Colleague Letter (February 22, 2008) clarified that the payments would be subject to the tax offset. Guidance in a subsequent OCSE Dear Colleague Letter (March 17, 2008) provided additional information (excerpted below): IRS is mailing two notices regarding the economic stimulus payments. They will begin mailing the first notice, “Economic Stimulus Payment Notice,” in early March. It will inform the recipient of the stimulus payments and when payments will begin. The second notice will ... advise how much the recipient should expect to receive and when the payment should arrive. The time frame for issuing stimulus payments will be May – September 2008. OCSE expects to begin receiving offsets from the stimulus payments as early as mid-May. Stimulus payments will be treated like any other tax offset refund. Injured Spouse Claims (Form 8379) will be calculated at up to 50 percent of the eligible amount of the stimulus payment prior to offset, regardless of the percentage of income claimed by the unobligated spouse for tax year 2007. The unobligated spouse will not be required to file an additional Form 8379 to receive their portion from the stimulus payment if they already filed an injured spouse claim against money offset from tax year 2007. IRS will automatically calculate up to 50 percent of the eligible amount of the stimulus payment prior to offset.

Apr 9, 2020

The PREP Act and COVID-19, Part 1: Statutory Authority to Limit Liability for Medical Countermeasures

Apr 8, 2020

Recovery Rebates and Unemployment Compensation under the CARES Act: Immigration-Related Eligibility Criteria

Apr 7, 2020

Funding for HUD in the CARES Act

Division B of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) provided $12.4 billion in additional FY2020 funding for several Department of Housing and Urban Development (HUD) programs and activities. The funds are generally for one of three broad purposes: to provide additional resources to meet emerging needs, to support existing rental assistance programs, or to provide additional administrative capacity and oversight. Three-quarters of the funding can be considered new resources to meet emerging needs, with most of the remaining funding supporting rental assistance programs. HUD has announced allocations of some grant funding provided by the law. Additional Resources to Meet Emerging Needs Several HUD grant programs provide relatively flexible funding to state and local governments, tribes, or other entities for eligible affordable housing, community development, or related activities. Because these programs generally fund a range of allowable activities, they may be useful in addressing a variety of emerging needs related to the pandemic. More-targeted grant programs can help address needs of specific vulnerable populations. The CARES act provides the HUD Secretary broad waiver authority in most accounts to expedite or facilitate the use of the funds to respond to the coronavirus. $5 billion for the Community Development Fund for Community Development Block Grants (CDBG): $2 billion to be allocated pursuant to the standard CDBG formula, $1 billion for direct allocation by HUD to states and insular areas, and up to $10 million to supplement existing awards and for technical assistance. The remaining funds are to be distributed to states and units of local government on a rolling basis as determined by the HUD Secretary. $4 billion for the Emergency Solutions Grants (ESG) (one type of HUD Homeless Assistance Grants): up to $2 billion to be distributed to states and units of local government using the ESG formula (based on the CDBG formula); remaining funds distributed based on a formula that will take into account factors such as risk of coronavirus transmission, number of people experiencing homelessness, and housing market conditions. Funds can be used for emergency shelter, short- and medium-term rental assistance, homelessness prevention activities, and supportive services; as well as temporary emergency shelters, to train staff on disease prevention and mitigation, and for hazard pay. A technical assistance set-aside for health care services is included. $65 million for Housing Opportunities for Persons with AIDS (HOPWA): not less than $50 million to be distributed to eligible states and metropolitan statistical areas using the HOPWA formula, and up to $10 million to organizations administering permanent supportive housing programs with HOPWA competitive grants. Funds may be used to maintain existing assistance, and also to respond to COVID-19, including isolation and relocation expenses to protect people living with HIV/AIDS. $300 million for Native American Programs: at least $200 million for the Native American Housing Block Grant (NAHBG); up to $100 million for the Indian Community Development Block Grant (ICDBG). NAHBG funds to be used “to prevent, prepare for, and respond to coronavirus, including to maintain normal operations,” and to fund affordable housing activities that are generally eligible under the program. Funds are allocated to tribes using the existing program formula. ICDBG funds to be used “to prevent, prepare for, and respond to coronavirus, for emergencies that constitute imminent threats to health and safety.” Funds will be allocated to tribes as prioritized by the HUD Secretary in a noncompetitive process. $2.5 million for Fair Housing programs: $1.5 million for the Fair Housing Assistance Program to address fair housing issues related to COVID-19; $1 million for the Fair Housing Initiatives Program to educate the public about fair housing issues related to COVID-19. Supporting Existing Rental Assistance Programs HUD rental assistance programs subsidize the difference between tenant contributions toward rent and a unit’s rent (or operating expenses). When tenants’ incomes are reduced—such as by rising unemployment triggered by the pandemic—their rent contributions decrease, which increases federal subsidy costs. The CARES Act provides supplemental funding to help cover those anticipated increased costs, and support administrative expenses. The act provides the HUD Secretary broad waiver authority in each account to expedite or facilitate the use of the funds to respond to coronavirus. $1.25 billion for Tenant-Based Rental Assistance, which funds the Housing Choice Voucher program. Includes $400 million for increased subsidy costs and $850 million for administrative and other expenses incurred by public housing authorities (PHAs), including “activities to support or maintain the health and safety of assisted individuals and families, and costs related to retention and support of participating owners.” Funds will be allocated based on need, as determined by the HUD Secretary. $685 million for the Operating Fund, to be used to maintain the operation of public housing properties and support coronavirus-related expenses, including health and safety activities for residents, and education and child care needs of impacted families. Funds will be allocated to PHAs as additional FY2020 funding based on the operating fund formula. $1 billion for Project-Based Rental Assistance to maintain normal operations and take other necessary actions to meet the needs of residents and owners of project-based Section 8 properties. $50 million for Section 202 Housing for the Elderly, including for owners to “maintain normal operations and take other necessary actions” during the time operations might be affected by COVID-19. Up to $10 million available for service coordinators. $15 million for Section 811 Housing for Persons with Disabilities, for the same maintenance of operations purposes described for Section 202. Administrative Capacity and Oversight In addition to program funding, the CARES Act also provides resources to support HUD’s administration and oversight of these funds. $50 million for Management and Administration: $35 million for Administrative Support offices to “prevent, prepare for, and respond to” coronavirus, and to support salaries and expenses, and information technology needs including telework; $15 million for the program offices that will administer the additional funding provided by the bill. $5 million to the HUD Office of Inspector General (OIG) for audits and investigations of projects and activities funded under the CARES Act.

Apr 7, 2020

CARES Act Higher Education Provisions

Apr 7, 2020

CARES Act Eviction Moratorium

The COVID-19 pandemic has disrupted business operations nationwide, leading to dramatic job losses that threaten the ability of many to meet their financial obligations, including housing rental payments. To aid individuals and businesses harmed by the pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136). Section 4024 of the CARES Act provides a temporary moratorium on eviction filings as well as other protections for tenants in certain rental properties with federal assistance or federally related financing. These protections are designed to alleviate the economic and public health consequences of tenant displacement during the COVID-19 outbreak. They supplement temporary eviction moratoria and rent freezes implemented in states and cities by governors and local officials using emergency powers. While Section 4024’s tenant protections are narrower in scope than those proposed by some lawmakers, called for by some tenant-advocates, or enacted in some other countries, they represent arguably unprecedented action by the federal government in an area of law that, largely, states and localities traditionally govern. Thus, questions remain about the law’s effects on tenants, landlords, and rental markets. Eviction and Rental Payment Protections CARES Act Section 4024(b) prohibits landlords of certain rental “covered dwellings” from initiating eviction proceedings or “charg[ing] fees, penalties, or other charges” against a tenant for the nonpayment of rent. These protections extend for 120 days from enactment (March 27, 2020). Section 4024(c) requires landlords of the same properties to provide tenants at least 30 days-notice before they must vacate the property. It also bars those landlords from issuing a notice to vacate during the 120-day period. In contrast to the eviction and late fee protections of Section 4024(b), which are expressly limited to nonpayment, Section 4024(c) does not expressly tie the notice to vacate requirement to a particular cause. Thus, Section 4024(c) arguably prohibits landlords from being able to force a tenant to vacate a covered dwelling for nonpayment or any other reason until August 23, 2020 (i.e., 120 days after enactment, plus 30 days after notice is provided). Section 4024(b)’s and (c)’s protections, however, do not absolve tenants of their legal responsibilities to pay rent. Tenants who do not pay rent during the eviction grace period may still face financial and legal liabilities, including eviction, after the moratorium ends. What properties does the CARES Act protect? The CARES Act’s eviction protections only apply to “covered dwellings,” which are rental units in properties: (1) that participate in federal assistance programs, (2) are subject to a “federally backed mortgage loan,” or (3) are subject to a “federally backed multifamily mortgage loan.” Covered federal assistance programs include most rental assistance and housing grant programs, including public housing, Housing Choice Vouchers, Section 8 Project-Based Rental Assistance, rural housing programs, and the Low Income Housing Tax Credit (LIHTC) program. A “federally backed mortgage loan” is a single-family (1-4 units) residential mortgage owned or securitized by Fannie Mae or Freddie Mac or insured, guaranteed, or otherwise assisted by the federal government. The term includes mortgages insured by the Federal Housing Administration and the Department of Veterans Affairs, and the Department of Agriculture’s direct and guaranteed loans. The act defines a “federally backed multifamily mortgage loan” almost identically to “federally backed mortgage loan” except that it applies to properties designed for five or more families. Outstanding Questions The unique nature of the CARES Act Section 4024 tenant protections raises several questions. First, how many of the nation’s roughly 43 million renters live in “covered dwellings”? Researchers estimate that roughly 12.3 million rental units have federally backed financing, representing 28% of renters. Other data show more than 2 million housing vouchers along with approximately 5 million federally assisted rental units. However, these data do not include every covered program and likely include duplicate properties because federal assistance can be provided to units with federally backed loans. Renters not covered by the federal moratorium could be covered by a state or local moratorium. Second, how will people know they are covered? While some renters living in federally assisted units may know they are assisted, unassisted renters are unlikely to know the mortgage status of their unit. Property owners may know if their mortgages are federally insured because they must have applied for the insurance. However, owners might not know whether Fannie Mae or Freddie Mac subsequently purchased their loans from their lenders because owners are not parties to these transactions. The opacity of this information raises questions about enforcement of the protections. Third, if tenants do not make rent payments during the moratorium, what are the financial ramifications for landlords, tenants, and housing markets? Relief programs established under the CARES Act and other government-provided assistance could mitigate the financial impact of missed rent payments. Landlords, for example, may be eligible for mortgage forbearance or small business loans and grants provided under different provisions of the CARES Act. Tenants may also be eligible for the act’s direct payments to individuals and enhanced unemployment compensation. These programs might ease the financial burdens of some landlords and tenants, but are unlikely to offset all financial burdens stemming from the pandemic. The CARES Act does not address how landlords can respond to missed payments after the moratorium ends. While the act bars landlords from charging late fees and other penalties because of a tenant’s nonpayment during the 120 days, whether or not late fees and interest on rental payments are prohibited from accruing during the grace period and being charged after it ends is unclear. After the 120-day period, landlords presumably could move to evict tenants who did not meet their rental obligations, subject to the CARES Act’s 30-day notice requirement and consistent with state and local laws. Whether an eviction wave will come at the end of the moratorium is unclear. Landlord eviction decisions will likely be affected by local rental market conditions at the time, including the extent to which other renters have suffered financial hardship during the pandemic, and whether landlords can successfully negotiate repayment plans with tenants.

Apr 7, 2020

COVID-19: Support for Mortgage Lenders and Servicers

The coronavirus (COVID-19) pandemic has affected the economy in numerous ways. Many states have issued some variation of a lockdown, restricting when citizens can leave their home and limiting business operations to critical services, such as groceries or pharmacies. Many businesses have closed operations, while others have reduced their workforce considerably. As a result, jobless claims have increased since the outbreak, leaving many consumers struggling to meet their financial obligations. One of the most significant financial obligations consumers are struggling to meet is their mortgage or rent payments. In the past three weeks, banking regulators have taken measures to provide consumers relief through payment deferral and loan modification plans. (See CRS Insight IN11244, COVID-19: The Financial Industry and Consumers Struggling to Pay Bills, by Cheryl R. Cooper.) Federal housing agencies issued a 60-day moratorium on foreclosures and evictions on March 18. In addition, Congress passed the CARES Act (P.L. 116-136), which contains provisions allowing consumers to enter into forbearance (payment deferment) agreements on certain qualifying mortgages and temporarily suspend certain foreclosures and evictions. If, however, missed loan payments generate mounting losses on depository institutions (i.e., banks and credit unions), their capital can erode quickly. (See CRS Insight IN11278, Banking Regulators’ Response to COVID-19, by Andrew P. Scott and David W. Perkins for a summary of measures regulators have taken to ensure that financial institutions have sufficient liquidity and capital.) For this reason, the federal housing finance regulators and agencies have taken measures to support mortgage market liquidity. Federal Housing Measures to Facilitate Liquidity During COVID-19 Many federal agencies are involved in housing finance: Fannie Mae and Freddie Mac, commonly referred to as the government-sponsored enterprises (GSEs), provide liquidity to the housing finance market by purchasing mortgages from lenders and subsequently guaranteeing the default risk linked to their issuances of mortgage-backed securities (MBS, a process known as securitization.) In 2008, the GSEs were placed under conservatorship by their primary regulator, the Federal Housing Finance Agency (FHFA). FHFA also regulates the Federal Home Loan Bank (FHLB) system, which is also a GSE, and comprises 11 regional banks that provide wholesale funding to its members—mortgage lenders, such as banks, credit unions, and insurance companies. Ginnie Mae is a federal government agency that issues MBS linked to mortgages whose default risks are guaranteed by federal agencies, such as the Federal Housing Administration (FHA), Department of Veterans Affairs, and the Department of Agriculture. Ginnie Mae guarantees its MBS investors timely principal and interest payments. (See CRS Report R42995, An Overview of the Housing Finance System in the United States, by N. Eric Weiss and Katie Jones.) The FHFA and Ginnie Mae have recently announced a number of measures to facilitate liquidity by making it easier for mortgage lenders and servicers to receive various forms of short-term cash advances. Fannie Mae and Freddie Mac Liquidity Provisions On March 23, 2020, the FHFA announced that it would allow flexibility in some of the appraisal and employment verification requirements for new mortgages purchased by Fannie and Freddie until May 17, 2020. The FHFA also announced on March 23that it was allowing the GSEs to enter into additional dollar roll transactions, which allow investors to sell an MBS to a GSE in exchange for cash with an agreement to repurchase a similar MBS at some point in the future. This provides MBS investors such as depositories with temporary cash loans to meet any pressing liquidity needs. Federal Home Loan Bank Liquidity Measures During the COVID-19 pandemic, FHFA is allowing FHLB member institutions to post residential mortgages that are in forbearance (i.e., the consumer is deferring payments) as collateral so they can subsequently receive advances from the FHLB. Some of the 11 FHLB institutions have established additional collateral relief programs to allow member institutions to continue receiving wholesale funding. Ginnie Mae Bridge-Loan Liquidity Mechanism Approved financial institutions that service mortgages underlying Ginnie Mae MBSs are required to remit timely payments to investors even when monthly payments are not received from borrowers. As consumers are allowed to defer payments and others involuntarily miss payments due to financial hardship, Ginnie Mae servicers—particularly non-depository servicers—could face significant liquidity shortages. On March 27, 2020, Ginnie Mae announced a last resort financing option, the Pass-Through Assistance Program, to allow servicers facing shortfalls to request a cash advance to meet the scheduled payments to investors. These measures are to take effect immediately upon Ginnie Mae’s publication of guidance, expected within the next two weeks. These measures apply to single family mortgages. Ginnie Mae also announced that similar programs are expected for reverse mortgages and multifamily mortgages in the near term.

Apr 7, 2020

COVID-19: China Medical Supply Chains and Broader Trade Issues

The outbreak of Coronavirus Disease 2019 (COVID-19), first in China, and then globally, including in the United States, is drawing attention to the ways in which the U.S. economy depends on manufacturing and supply chains based in China. This report aims to assess current developments and identify immediate and longer range China trade issues for Congress. An area of particular concern to Congress is U.S. shortages in medical supplies—including personal protective equipment (PPE) and pharmaceuticals—as the United States steps up efforts to contain COVID-19 with limited domestic stockpiles and insufficient U.S. industrial capacity. Because of China’s role as a global supplier of PPE, medical devices, antibiotics, and active pharmaceutical ingredients, reduced export from China have led to shortages of critical medical supplies in the United States. Exacerbating the situation, in early February 2020, the Chinese government nationalized control of the production and distribution of medical supplies in China—directing all production for domestic use—and directed the bureaucracy and Chinese industry to secure supplies from the global market. Now apparently past the peak of its COVID-19 outbreak, the Chinese government may selectively release some medical supplies for overseas delivery, with designated countries selected, according to political calculations. Congress has enacted legislation to better understand and address U.S. medical supply chain dependencies, including P.L. 116-136, The Coronavirus Aid, Relief, and Economic Security (CARES) Act, that includes several provisions to expand drug shortage reporting requirements; require certain drug manufacturers to draw up risk management plans; require the U.S. Food and Drug Administration (FDA) to maintain a public list of medical devices that are determined to be in shortage; and direct the National Academies of Science, Engineering, and Medicine to conduct a study of pharmaceutical supply chain security. Other potential considerations for Congress include whether and how to incentivize additional production of health supplies, diversify production, address other supply chain dependencies (e.g., microelectronics), fill information and data gaps, and promote U.S. leadership on global health and trade issues. The crisis that has emerged for the U.S. economy is defined, in large part, by a collapse of critical supply, as well as a sharp downturn in demand, first in China and now in the United States and globally. As China’s manufacturing sector recovers, while the United States and other major global markets are grappling with COVID-19, some fear China could overwhelm overseas markets, as it ramps up export-led growth to compensate for the sharp downturn of exports in the first quarter of 2020, secure hard currency, and boost economic growth. China may also seek to make gains in strategic sectors—such as telecommunications, microelectronics, and semiconductors—in which the government undertook extraordinary measures to sustain research and development and manufacturing during the COVID-19 outbreak in China.

Apr 6, 2020

Wildlife Trade, COVID-19, and Other Zoonotic Diseases

Apr 6, 2020

Interaction of International Tax Provisions with Business Provisions in the CARES Act

Apr 6, 2020

Defense Primer: The United States Space Force

Apr 6, 2020

Supplemental Appropriations for Agriculture and Related Agencies Due to COVID-19

Apr 3, 2020

The Families First Coronavirus Response Act Leave Provisions

Apr 2, 2020

Title IV Provisions of the CARES Act (P.L. 116-136)

Economic conditions have deteriorated rapidly in the past few weeks, as the Coronavirus Disease 2019 (COVID-19) pandemic has caused many businesses and public institutions to limit or close their operations, increasing financial hardship for many Americans due to layoffs or time off of work due to illness. COVID-19’s effect on the airline industry has been one of many areas of interest for Congress. On March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law as P.L. 116-136. The act contains a number of provisions aimed broadly at stabilizing the economy and helping affected households and businesses. Specifically, Title IV of the CARES Act grants funds to industries affected by the virus and new authorities to the regulators and agencies responsible for those industries, waives requirements for industries to meet certain regulatory requirements, and provides added oversight and consumer protections, each on a temporary basis. These provisions can generally be classified into a few categories, presented below. Financial Assistance for Industry. Title IV, Subtitle A temporarily provides Treasury with up to $500 billion (through the Exchange Stabilization Fund) to make loans, loan guarantees, or investments to assist businesses, states, and municipalities affected by COVID-19—such assistance has been referred to by some as “bailouts.” Treasury can make loans and loan guarantees directly to companies in three industries: up to $25 billion to industries related to passenger air travel; up to $4 billion to cargo air carriers; and up to $17 billion to businesses critical to national security. Various restrictions on executive compensation, stock buybacks and dividends, conflicts of interest, and loan forgiveness apply to this assistance. Borrowers must provide financial protection to provide Treasury with potential financial upside (e.g., warrants). The remainder (at least $454 billion) is available to support facilities established by the Federal Reserve (Fed) to provide liquidity to the financial system by supporting lending to businesses, states, and municipalities. These funds might be used to cover future losses on Fed emergency facilities created in response to COVID-19, for example. Treasury and the Fed have broad discretion to determine the terms of the assistance, subject to statutory restrictions. Oversight is provided through reporting requirements and the creation of a Special Inspector General and a Congressional Oversight Commission. Subtitle A also allows the Federal Deposit Insurance Corporation and National Credit Union Administration to temporarily insure certain deposits above the deposit insurance limit and temporarily suspend a prohibition on using the Exchange Stabilization Fund to insure money market funds (a type of mutual fund similar to a bank account). Title IV, Subtitle B provides up to $32 billion to continue payment of employee wages, salaries, and benefits at airline-related industries. The title also addresses domestic air service, including essential air service, aviation excise taxes, and collective bargaining. Consumer Protection. For consumers affected by COVID-19, Title IV would preserve the current status of credit reports for consumers who modify or defer loan payments, allow residential mortgage borrowers to enter forbearance, and protect renters from evictions. Regulatory Relief. Title IV also provides regulatory relief for depository institutions, such as banks. For example, it temporarily reduces capital requirements for smaller banks using the Community Bank Leverage Ratio, and it temporarily suspends certain regulatory requirements involving the treatment of losses.

Apr 2, 2020

Personal Protective Equipment (PPE) and COVID-19: FDA Regulation and Related Activities

Apr 2, 2020

COVID-19: Defense Support of Civil Authorities

The U.S. military has a long history of providing support to civil authorities, particularly in response to disasters or emergencies (examples include responding to yellow fever epidemics in 1873 and 1878). The Department of Defense (DOD) defines defense support of civil authorities as “Support provided by U.S. Federal military forces, DOD civilians, DOD contract personnel, DOD Component assets, and National Guard forces (when the Secretary of Defense, in coordination with the Governors of the affected States, elects and requests to use those forces in Title 32, U.S.C., status) in response to requests for assistance from civil authorities for domestic emergencies, law enforcement support, and other domestic activities, or from qualifying entities for special events.” (DOD Directive 3025.18, 18.) Defense support of civil authorities for major incidents is typically carried out in accordance with the National Response Framework (NRF), which is “a guide to how the Nation responds to all types of disasters and emergencies.” (NRF, p. 2) Among other things, it establishes broad lines of authority for federal government agencies to prepare for and respond to any terrorist attack, major disaster, or other emergency. DOD Support to Public Health Emergencies Under the NRF, “Regardless of the type of incident, the President leads the Federal Government response effort to ensure that the necessary resources are applied quickly and efficiently to large-scale and catastrophic incidents.” (NRF, p. 34) The Secretary of the Department of Homeland Security (DHS) “is the principal federal official for domestic incident management” and “coordinates with federal entities to provide for federal unity of efforts for domestic incident management.” (NRF, p. 34) Section 300hh of Title 42 specifies that “The Secretary of Health and Human Services shall lead all Federal public health and medical response to public health emergencies and incidents covered by the National Response ... or any successor plan.” The NRF designates the Department of Health and Human Services (HHS) as the coordinator of Emergency Support Function (ESF) #8, Public Health and Medical Services and the primary agency, while DOD is a support agency for ESF #8. DOD has a broad range of capabilities that could be useful to public health response efforts, including transportation assets, medical personnel and supplies, security forces, and communications equipment. ESF #8 lists a number of capabilities which DOD might be requested to provide during a public health emergency, including the following: Aeromedical evacuation, medical management, and transportation of patients. Logistical support to public health/medical response operations. Health care providers to augment civilian hospital staff and federal deployable teams. Medical units, such as Combat Support Hospitals, and Navy hospital ships or other vessels for patient care. DOD medical supplies and material for use at hospitals, clinics, or other medical care locations. DOD military treatment facilities for medical care of non-Military Health care System beneficiaries. Public health and medical surveillance, laboratory diagnostics, and confirmatory testing. See ESF #8, pages ESF #8-11 to #8-12, for a more detailed list. DOD Support to the National Disaster Medical System The National Disaster Medical System (NDMS) is a coordinated partnership between DOD, DHS, HHS and the Department of Veterans Affairs (VA) that responds to the needs of casualties and public health emergency patients. NDMS is the primary federal response asset to assist with mass casualty events. It includes deployable medical response teams, a hospital care component, and a patient evacuation system. NDMS supports domestic health emergencies with HHS as the lead agency and military health emergencies with DOD as the lead agency. DOD provides available resources to support NDMS during domestic disasters or emergencies pursuant to federal law, as directed by the President, or consistent with the NDMS Federal Partners Memorandum of Agreement, and often provides military transport for patient evacuations. Requests for NDMS assistance are processed under DOD policy for Defense Support of Civil Authorities and the NRF. Approved NDMS assistance is provided on a reimbursable basis. During a domestic health emergency, HHS activates NDMS or specific capabilities of the NDMS, depending on the situation. The Secretary of HHS may activate one or more of the fourteen military treatment facilities designated as a Federal Coordinating Center (FCC) by notifying DOD NDSM program managers in writing. The Secretary of Defense must approve DOD FCC activations that support civil authorities. Initiating Defense Support The President or the Secretary of Defense can directly authorize defense support to civil authorities. This might occur when the need is clear and time is of the essence. The more common way by which defense support is initiated is via a request for assistance (RFA) from a civil authority, such as a state or another federal agency. For the coronavirus response, RFAs would typically come to DOD from HHS or DHS. DOD evaluates RFAs based on six criteria: Legality: compliance with the law. Lethality: potential for use of lethal force by or against DOD personnel. Risk: safety of DOD personnel. Cost: source of funding and effect on the DOD budget. Appropriateness: whether providing the support is in the interest of DOD. Readiness: impact on DOD’s ability to perform its other primary missions. Some RFAs may require approval of the Secretary of Defense, but approval authority for many types of requests is delegated to the Assistant Secretary of Defense for Homeland Security and Global Security (ASD(HD&GS)). The ASD (HD&GS) also serves as “the DoD focal point for federal departments and agencies and other entities on public health and medical support, preparedness, and policy matters for DSCA” and “is the lead for DoD on matters related to National Response Framework Emergency Support Function #8,” coordinating and consulting with the Assistant Secretary of Health Affairs on public health and medical DSCA support.” (DOD Instruction 3025.24, p. 5.)

Apr 2, 2020

The Economic Development Administration and the CARES Act (P.L. 116-136)

States and communities will be able to apply for funding from the U.S. Department of Commerce Economic Development Administration (EDA) to plan and implement economic recovery strategies in response to the coronavirus pandemic. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) includes $1.5 billion for EDA to administer grants through its established Economic Adjustment Assistance (EAA) program. For years the EAA has been used to address ongoing economic restructuring needs. In FY2018 and FY2019, Congress used the EAA to fund economic recovery and resiliency efforts following select natural disasters. The base EAA program supports coordinated, long-term strategies to address economic injury and create new opportunities. As a flexible program, the EAA can channel funds to community-specific initiatives and to meet a variety of industry needs for both rural and urban communities. EAA can be used for infrastructure or broadband projects aimed at diversification, entrepreneurship, or creating new modes of commerce. The EAA can also be used for non-construction, planning, and implementation activities that support businesses and jobs. For instance, the EAA can be used to increase access to business capital or enhance the resiliency of business operations. This Insight considers the role of the EAA in the economic development response to the coronavirus pandemic. For more information on the EDA, see CRS Report R41241. About the Economic Development Administration The EDA was established under the Public Works and Economic Development Act (PWEDA) of 1965 (42 U.S.C. §3121 et seq.) and is the only federal agency exclusively focused on coordinating and implementing economic development policy. EDA programs seek to expand local economic opportunities and focus on support for distressed communities. The agency’s mission is “to lead the federal economic development agenda by promoting innovation and competitiveness, preparing American regions for growth and success in the worldwide economy.” Agency regulations are codified at 13 C.F.R. Chapter III. The Economic Adjustment Assistance Program The CARES Act was enacted into law on March 27, 2020, in response to the widespread community and economic impact caused by the COVID-19 pandemic. Although additional EDA programs support the agency’s mission, the EAA is used for economic development activities that address ongoing economic distress or a sudden and severe dislocation, including disasters or emergencies. Except for strategy grants and projects serving special impact areas, EAA projects must be consistent with the area’s Comprehensive Economic Development Strategy (CEDS) or equivalent EDA-accepted regional economic development strategy. The CEDS is a locally-driven economic development plan that outlines a vision and key strategies for a region. EAA projects can include, but are not limited to: “strategy grants” to create or update a Comprehensive Economic Development Strategy or disaster recovery plan; construction or upgrades to public infrastructure, including broadband; construction and operations of business incubators; capitalization of revolving loan funds, which generally assist small businesses, and other initiatives to improve access to and utilization of private capital; activities that support the creation of businesses and jobs, including economic diversification strategies; and market or industry research studies, technical assistance, training, and capacity-building efforts. EAA Context—Disaster Economic Recovery and Restructuring The EAA program can be used for appropriations for disaster economic recovery and to meet ongoing economic restructuring needs. For instance, In support of long-term economic recovery and resilience activities, Congress appropriated $600 million in FY2018 (P.L. 115-123) and $600 million in FY2019 (P.L. 116-120) to the EAA program following some hurricanes and other natural disasters that occurred in calendar years 2017, 2018, and 2019. In support of transitioning regional economies facing restructuring challenges, each year in FY2017, FY2018, FY2019, and FY2020, Congress appropriated an additional $30 million to EDA for the Assistance to Coal Communities (ACC) program through the EAA program. The ACC targets “communities and regions that have been negatively impacted by changes in the coal economy.” In FY2020, Congress appropriated $15 million through the EAA program to build economic resilience and industry diversification in nuclear closure communities. CARES Act Funding The CARES Act provides $1.5 billion in disaster economic recovery funding for the EAA program. This amount is nearly five times the recent annual appropriation for EDA. In FY2020, Congress appropriated $333 million for programs and administration of the EDA (P.L. 116-93), with $37 million of its FY2020 appropriations allocated to the EAA program. Eligible Applicants Eligible applicants include EDA-designated Economic Development Districts (EDDs); Indian tribes or a consortium of Indian tribes; states and local governments; institutions of higher education or a consortium of institutions; and nonprofit organizations acting in cooperation with officials of a political subdivision of a state (42 U.S.C. §3122(4)(a)). Cost Share Requirements Under the base EAA program, the EDA generally allows for the federal share to be 50-80% of the project cost, with some exceptions (42 U.S.C. §3144). EAA grants for disaster economic recovery activities may be funded with up to 100% federal cost share (42 U.S.C. §3233). Considerations State and local governments may face budget shortfalls as a result of the coronavirus because of declining revenues and increased demand for services. EDA’s role in the pandemic response will likely emphasize coordinated, long-term, regional, and strategic responses to economic recovery. Short-term responses to address budget shortfalls or proposals to address rural residential infrastructure needs are not likely to be competitive in the EAA program. In prior rounds of Disaster Supplemental Notice of Funding Opportunities, EDA sought proposals that created “resiliency” in order to respond to future economic shocks. The economic impact from the coronavirus is widespread; it reaches most of the United States and most economic sectors. As such, the competition and demand for EAA funding is likely to be high, and the recovery needs will be extensive and distinct from prior challenges related to natural disasters. The COVID-19 pandemic created and continues to create challenges which may be exacerbated for communities and regions with pre-existing conditions of distress and/or limited capacity. EDDs or regional development organizations may be able to partner with communities for project development and application assistance. EDA maintains a directory of EDDs and other resources, organized by state.

Apr 2, 2020

Retirement and Pension Provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

Apr 1, 2020

Small Businesses and COVID-19: Relief and Assistance Resources

This CRS Insight presents selected websites and CRS products potentially relevant to small businesses that are directly affected by the Coronavirus Disease 2019 (COVID-19) pandemic and seeking economic relief and assistance. For an analysis of the small business provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted on March 27, 2020, see CRS Report R46284, COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry. For a list of all CRS products related to COVID-19, see the CRS COVID-19 Resources page. Selected Resources Small Business Administration The Small Business Administration’s (SBA’s) “Coronavirus (COVID-19)” resource page provides information on new assistance programs established by the CARES Act. Businesses may contact local SBA district offices with questions about when new assistance programs will become available. SBA economic injury disaster loans are low-interest loans available to eligible small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, nonprofit organizations in declared disaster areas. See CRS Report R44412, SBA Disaster Loan Program: Frequently Asked Questions, by Bruce R. Lindsay, and CRS Insight IN11232, SBA Economic Injury Disaster Loans for COVID-19, by Bruce R. Lindsay. SBA also continues to offer a number of nondisaster loans and grants for small businesses and organizations. For more information, contact local SBA affiliates: SBA district offices Small Business Development Centers Other SBA-affiliated resource partners For summaries of non-disaster SBA assistance programs, see CRS Report RL33243, Small Business Administration: A Primer on Programs and Funding, by Robert Jay Dilger and Sean Lowry. Department of Agriculture, Rural Development Business Programs The Department of Agriculture’s (USDA’s) Rural Development Business programs provide financial and technical assistance to qualified rural businesses; see CRS Report RL31837, An Overview of USDA Rural Development Programs, by Tadlock Cowan. USDA has also announced measures to assist businesses affected by COVID-19. Department of Housing and Urban Development The Community Development Block Grant (CDBG) is a flexible program that provides funds to address a wide range of community development needs, principally for low- and moderate-income persons. In response to the COVID-19 pandemic, some U.S. localities have announced efforts to support small businesses with existing CDBG funds, and HUD has issued a guide for infectious disease response; see CRS Insight IN11277, Responding to the COVID-19 Outbreak with Community Development Block Grant (CDBG) Authorities, by Michael H. Cecire and Joseph V. Jaroscak. For more information on eligible activities, see HUD’s “CDBG Infectious Disease Response” webpage or contact local or state CDBG administrators. Department of Labor The U.S. Department of Labor has resources to help employers and workers prepare for and respond to COVID-19, including information on workplace safety; wages, hours, and leave; unemployment insurance; and other topics. Department of the Treasury, Community Development Financial Institution Fund The Treasury’s Community Development Financial Institutions Fund supports organizations that provide loans to businesses, homebuyers, community developers, and investors in distressed areas; see CRS Report R42770, Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issues, by Sean Lowry. Federal Government Contracting Opportunities Incumbent and potential contractors may access federal agencies’ solicitations on the beta version of the System for Award Management. For example, the Biomedical Advanced Research and Development Authority (part of the Department of Health and Human Services) issued a solicitation for advanced development and licensing of COVID-19 diagnostics, vaccines, or medicines. Although some solicitations might include the term “COVID-19,” contracting opportunities related to the coronavirus outbreak may not necessarily include this term or related terms. Small businesses may find information about the federal procurement process in the SBA’s contracting guide. See, also, CRS Report RS22536, Overview of the Federal Procurement Process and Resources, by L. Elaine Halchin, and CRS Legal Sidebar LSB10428, COVID-19 and Federal Procurement Contracts, by David H. Carpenter. The Federal Reserve System The Main Street Business Lending Program, a new initiative announced by the Federal Reserve, will reportedly support eligible small and medium-sized businesses. Internal Revenue Service The Internal Revenue Service provides updated information on tax relief for individuals and businesses affected by COVID-19, including news releases and frequently asked questions, on its Coronavirus Tax Relief page; also, see CRS Report R46279, The Coronavirus Aid, Relief, and Economic Security (CARES) Act—Tax Relief for Individuals and Businesses, coordinated by Molly F. Sherlock. Minority Business Development Agency The Department of Commerce’s Minority Business Development Agency (MBDA) is the lead federal agency dedicated to supporting the development and expansion of the minority business community. Through a network of local business development centers, the MBDA carries out this mission by providing a variety of business assistance services to minority-controlled business enterprises of all sizes. Local Minority Business Development Centers are available in a number of communities. National Institute of Standards and Technology, Manufacturing Extension Partnership The National Institute of Standards and Technology’s Manufacturing Extension Partnership is a national network of centers that provide custom services to small and medium-sized manufacturers to improve production processes, upgrade capabilities, and facilitate product innovation. For more information, see CRS Report R44308, The Manufacturing Extension Partnership Program, by John F. Sargent Jr. State, Local, and Private Resources State and local economic development or commerce agencies may provide assistance to new and established businesses. Many city and state governments are offering COVID-19 business relief in the form of loans, grants, or tax-deferral programs. Although foundations do not typically award grants to businesses, some private grantmakers or local community foundations may also be possible resources in light of COVID-19. USA.gov USA.gov lists a growing number of resources on the federal government response to COVID-19. See the “Businesses” section for links to the Department of the Treasury, Export-Import Bank, Farm Credit Administration, and other federal agencies.

Apr 1, 2020

The Coronavirus Relief Fund (CARES Act, Title V): Background and State and Local Allocations

The sudden decline in economic output following the Coronavirus disease 2019 (COVID-19) outbreak has significantly altered the fiscal outlook for state and local governments. A sizable share of economic output derives from state and local government activity. These governments are generally required to balance their operating budgets every one or two years. Early evidence suggests that the COVID-19 economic shock will have a notable impact on state and local budgets. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136), signed into law on March 27, 2020, created the Coronavirus Relief Fund, which provides $150 billion in direct assistance for domestic governments. The CARES Act stipulates that the $150 billion provided to the Coronavirus Relief Fund is allocated to governments in states, territories, and tribal areas as follows: (1) $139 billion is allocated to state governments in the 50 states, with allocations based on their populations and with no state receiving less than $1.25 billion; (2) $8 billion is set aside for governments in tribal areas; and (3) $3 billion is allotted to governments in territories, including the District of Columbia and Puerto Rico. Coronavirus Relief Fund assistance is provided to state governments. Local governments serving a population of at least 500,000, as measured in the most recent census data, may elect to receive assistance directly from Treasury. Such direct local assistance allocations reduce the allocation that is made to the state government (keeping the state allocation constant), and are equal to the product of (1) the state or territory allocation amount, (2) the share of the state or territory population served by the local government, and (3) 45%.

Apr 1, 2020

The National Guard and the COVID-19 Pandemic Response

Apr 1, 2020

Coronavirus Aid, Relief, and Economic Security (CARES) Act: CRS Experts

The following two tables provide points of contact for CRS’s congressional clients with specific questions regarding the particular authorities and appropriations in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136). This report is intended as a companion to other CRS products on the COVID-19 response efforts, many of which can be found on the CRS Coronavirus Disease 2019 resource page. Separate tables are provided for each division of the CARES Act: Division A, which includes significant expansions in small business lending, unemployment insurance, tax relief to individuals and employers, and economic stabilization fund, among other measures, as well as some direct appropriations; and Division B, which is a more traditionally structured $340 billion emergency supplemental appropriations measure. The topics are arranged in the order they arise in the bill to ease client searching. After the topic, a cross-reference to a CRS product may be listed to provide context for the programs or activity, followed by the name of the relevant CRS contact, and email address. Phone numbers are not listed at this time due to the impact of remote work on CRS operations. Please note that some points of contact cover multiple accounts or programs. (To be suppressed.)

Apr 1, 2020

Tax Treatment of Net Operating Losses (NOLs) in the Coronavirus Aid, Relief, and Economic Security (CARES) Act

Increased benefits from net operating losses (NOLs) had been discussed as part of the response to the economic effects of the coronavirus (COVID-19). The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) included a provision increasing tax benefits for NOLs. This revision temporarily suspends current rules that were last revised in the 2017 tax revision, popularly known as the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97). Temporary Revisions in the CARES Act Under current permanent law, when a firm has a loss (a net operating loss, or NOL), taxes are not reduced immediately beyond zero. Rather, the business owes no income tax in that tax year and the loss can be carried forward indefinitely. In subsequent years, the NOL can be used to reduce up to 80% of taxable income, thus reducing taxes in the future. Individual taxpayers’ losses that can be offset against nonbusiness income are limited to $500,000 for joint returns and $250,000 for single returns, under a provision that expires after 2025. The current permanent rules were enacted in the TCJA and became effective for 2018. Prior to that revision, losses could be carried back two years and carried forward for 20 years, fully offsetting tax liability. Carrybacks of losses yield immediate tax reductions, while carryforwards reduce future tax liabilities. There were no dollar limits on loss offsets for individuals. The CARES Act allows firms to carry back losses in tax years beginning after December 31, 2017, and before January 1, 2021 (for calendar year firms, covering 2018, 2019, and 2020) for up to five years. NOLs carried back can also offset 100% of taxable income—an increase from the 80% offset under permanent law. In addition to allowing immediate tax benefits for losses incurred in those years and increasing the loss carryback to cover 100% of taxable income, NOLs carried back are allowed to reduce taxable income that was previously taxed at higher tax rates under pre-TCJA rates. The TCJA reduced corporate rates from 35% to 21%, and reduced individual rates in many cases, including lowering the top individual rate from 39.6% to 37% or 35%. Thus, for corporations, a dollar of loss carried forward to the future would save $0.21 in taxes, whereas a dollar of loss carried back to years before 2018 would save $0.35 in taxes. The five-year carryback means that losses incurred in 2018 could be carried back as far as 2013. The CARES Act also suspended for 2018-2020 the provision in the TCJA (Section 461(l)) that limited the amount of NOLs that individuals could use to offset other income. It also clarified that other income included wages from the business for purposes of the limitation in future years. The CARES Act also included a proposed technical correction to the TCJA, making the changes that eliminated carrybacks and restricted the offset to 80% of taxable income apply to tax years beginning rather than ending after December 31, 2017. This revision allowed certain firms whose fiscal years are not based on calendar years to use the pre-TCJA rules for losses in the year spanning 2017 and 2018. It also allows taxpayers to elect to disregard years in which a tax was paid under the TCJA’s transition tax (Section 965) on previously accumulated earnings abroad. The Joint Committee on Taxation estimates a revenue loss of $80.0 billion in FY2020 and $8.7 billion in FY2021 from the general NOL changes. This revenue loss is followed by gains in subsequent years, resulting in an estimated overall loss of $59.5 billion in the first six fiscal years (FY2020-FY2025) and a loss of $25.5 billion in the first 11 years (FY2020-FY2030). Some of the revenue loss is a matter of timing (receiving tax reductions now instead of in the future) and some is permanent due to the effect of the tax rate differential. The lifting of the limit on losses for individuals was estimated to lose $74.3 billion in FY2020 and $66.4 billion in FY2021, with smaller amounts in subsequent years, resulting in an overall estimated loss of $154.8 billion in the first six years (FY2020-FY2025) and $169.6 billion in the first 11 years (FY2020-FY2025). More generous NOL treatment has been used in the past to address the effects of disasters and economic downturns on businesses. Economic Effects A broad swath of industry, including energy, manufacturing of durable equipment, travel, and tourism, as well as the restaurant industry is expected to be especially affected by economic slowdown from the COVID-19 pandemic. An objective of more generous NOL rules is to increase liquidity and cash flow and make it easier for businesses that benefit to survive the economic disruption caused by the pandemic. Past expansions of NOLs have been used as economic stimulus. More generous NOLs are not expected to be a particularly effective stimulus to the economy as a whole, as stimulating the economy generally requires some incentive to spend. The efficacy of a provision as a fiscal stimulus is reflected in its projected multiplier effects (how much output a dollar’s worth of revenue or spending causes) and both the Congressional Budget Office and Moody’s (a private forecaster) estimated small effects for NOLs. (Note, however, that these estimates were made during the Great Recession and the underlying causes were different.) Increased cash flow is not generally viewed as an incentive to invest, and thus usually has limited effectiveness as economic stimulus. As noted above, however, it can provide increased liquidity and cash flow.

Mar 31, 2020

Business Interruption Insurance and COVID-19

The economic disruption from the COVID-19 pandemic has led businesses and policymakers to ask whether insurance should cover associated losses. The loss of income from mandatory or voluntary closures, supply chain disruptions, and reduced demand due to social distancing measures may induce businesses of all sizes to seek compensation from insurers. Commercial Property Insurance Most businesses carry commercial property insurance, including coverage for damage to their building and contents due to a covered cause, such as a fire or windstorm. Such insurance may also cover loss of income resulting from property damage (see “Business Interruption Insurance” below). Viruses and infectious diseases are generally not designated perils in a standard policy, although all-risks coverage might include COVID-19. Following previous health crises, many policies now contain explicit exclusions for virus or bacterial losses. In 2006, the Insurance Services Office (ISO) introduced an exclusion for loss due to virus or bacteria that applies to property damage to buildings or personal property and endorsements that cover business income, extra expense, or action of civil authority. This language excludes coverage for loss or damage resulting from any virus or microorganism that induces physical distress, illness, or disease. Physical Loss or Damage Requirement Property insurance policies typically require direct physical loss or damage to tangible property. For policies without an exclusion for viruses, the determination of coverage related to the coronavirus may turn on the definition of physical damage. When a business remains habitable but has been closed as part of a mandatory or voluntary closure to protect against contamination, it has probably not suffered a direct physical loss. If a property has become physically contaminated and uninhabitable due to coronavirus, there may be a basis to claim that a direct physical loss has occurred. Some orders shutting businesses, such as that issued by the Mayor of New York, have specifically cited property damage from COVID-19 as one of the underlying reasons for shutdowns. In addition, there is some case law that supports an interpretation of direct physical loss to include damage that is not structural but could make the premises unfit for occupancy. Several lawsuits challenging the physical damage requirement have been filed, arguing that the virus physically infects and stays on the surface of materials for days and contamination of the insured premises by the coronavirus is a direct physical loss needing remediation. Business Interruption Insurance Business interruption (BI) insurance can be an add-on to a property insurance policy, or a stand-alone policy, covering loss of income, contingent BI, and possibly losses due to actions by civil authorities. It typically covers business losses directly or indirectly caused by a covered peril—loss of profits, fixed costs (operating expenses and other costs still being incurred), cost of actions taken to mitigate the loss, and reasonable expenses to allow the business to continue operating. Business Income Coverage Business income coverage provides coverage for sustained loss of income due to the necessary suspension of the policyholder’s operations. For example, if fire damage shuts down a factory, the business income coverage usually pays for lost income until the damage can be repaired and production can be restored. The suspension, however, must be caused by a covered cause that results in direct physical loss or damage to the property. Contingent Business Interruption Contingent business interruption coverage covers a policyholder’s business losses resulting from loss, damage, or destruction of property owned by others, as long as the underlying cause of damage to the supplier or customer is of the type covered by the insured’s own property policy. For example, if a windstorm were to damage a supplier’s factory and prevent it from producing component parts essential to an insured business’s operation, the business would be able to claim under contingent BI coverage. Civil Authority Coverage Civil authority coverage provides coverage for BI losses when a civil authority prohibits or impairs access to the policyholder’s premises. Depending on specific wording, a policy’s civil authority coverage may require that the access restriction results from physical loss. Some courts have rejected coverage for losses sustained as a result of civil authority orders that were designed to prevent future damage rather than address existing property damage, such as evacuation in advance of a hurricane. A Louisiana lawsuit is seeking a judicial determination that the state’s public gathering restrictions related to COVID-19 trigger the civil authority provision in their all-risks policy. Legislative Actions Related to Business Interruption Insurance Insurers are reluctant to cover BI losses in a pandemic, both because of the scale and the extreme correlation of the losses. In response, some legislators are considering actions to shift some economic losses to the insurance industry, particularly with respect to BI losses. A bipartisan group of 18 House members wrote to four insurance industry trade groups, asking them to make financial losses related to COVID-19 part of their BI coverage retroactively, particularly for small businesses. In response, the industry representatives said that, although they are working to assist their customers, BI policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19. Industry sources suggest that the cost of covering BI claims for small businesses could be $110 billion to $290 billion monthly. The response of insurance trade groups includes consideration of an option where businesses submit claims to their insurers as if BI resulting from coronavirus were covered. Insurers would then adjust those claims as normal and determine the appropriate claims payment, which would be funded by the government. This approach would resemble the existing mechanism used for the National Flood Insurance Program. A state bill in New Jersey would require insurers retroactively to include virus transmission as a covered peril in BI policies. The bill also includes a provision that would allow liable insurers to petition the state for partial reimbursement collected from other insurers in New Jersey that do not offer BI coverage. This would potentially shift business losses attributable to COVID-19 to all insurers in the state. Massachusetts, New York, and Ohio have also introduced bills on BI coverage.

Mar 31, 2020

Federal Medical Assistance Percentage (FMAP) Increase Available for Title IV-E Foster Care and Permanency Payments

The Families First Coronavirus Response Act (P.L. 116-127) authorizes increased federal funding to states through a 6.2 percentage point increase in the federal medical assistance percentage (FMAP), also known as the Medicaid matching rate. This expanded federal support is available to states that meet specific Medicaid program requirements and is made effective retroactive to January 1, 2020, the first day of the calendar year quarter in which the U.S. Secretary of Health and Human Services declared a public health emergency. The increase is to remain in place until the last day of the calendar year quarter in which the public health emergency period ends. The FMAP is used to determine the federal share of costs in Medicaid and other programs, including the Foster Care, Prevention, and Permanency program, authorized in Title IV-E of the Social Security Act (SSA) and commonly called the “IV-E program.” What is the Foster Care, Prevention, and Permanency (IV-E) program? Foster care is a temporary living arrangement for children that a state determines are not able to safely continue to live in their own homes. Most children placed in foster care live in a foster family home of a nonrelative or relative, others are placed in group living arrangements. The first goal of the state child welfare agency is typically to provide services to enable a child to be safely reunited with his or her parents. If this is determined not to be possible or appropriate, the agency works to find a new permanent home for the child through adoption or legal guardianship. What IV-E program costs receive federal support at the FMAP? Under the IV-E program, states are required to provide foster care maintenance payments and adoption assistance payments to eligible children, and the federal government is obligated to reimburse states for a part of the cost of those payments. Further, states may opt to provide kinship guardianship assistance payments to eligible children. Additionally, as of October 1, 2019 (or depending on the state, by October 1, 2021) they are permitted to provide certain evidence-based services intended to prevent the need for children to enter foster care. If a state opts to provide these payments or services, the federal government is also obligated to share in this cost. A state’s FMAP is used to determine the federal share of IV-E foster care maintenance, adoption assistance, and guardianship assistance payments. These payments are provided on an ongoing basis to an eligible child’s foster care provider, adoptive parent, or legal kinship guardian. During FY2020, on an average monthly basis, IV-E payments were expected to be made on behalf of an estimated 729,000 children, including 164,000 children in foster care and 565,000 children in adoptive or guardianship homes. The federal share of all other IV-E program costs is provided at fixed rates that are the same in every state. These rates, which are not changed by the FMAP increase, apply to program administration costs, including child placement, case management and other program-required activities (50%), training costs (75%); and Title IV-E prevention services (50% now, and slated to be replaced by FMAP reimbursement as of FY2027). What is each state’s FMAP? The FMAP for each of the 50 states is annually computed by HHS using a formula provided in the Medicaid program (§1905(b) of the SSA). The formula provides that states with higher per capita income (relative to the per capita income nationally) receive lower federal reimbursement rates, while states with lower per capita income receive higher federal reimbursement rates. State regular FY2020 FMAPs are available in the Federal Register. Section 6008 of P.L. 116-127 temporarily increases each state’s FMAP by 6.2 percentage points as of January 1, 2020. For example, if a state’s regular FMAP is 50%, during the currently declared public health emergency it is increased to 56.2%. The highest regular state FMAP for FY2020 is nearly 77%, and during the public health emergency this FMAP will be nearly 83.2%. How does the money get to a state? States operating a Title IV-E program submit quarterly “claims” to the HHS’ Administration for Children and Families (ACF). These claims represent spending under the program. For example, if a state submits claims showing that it spent $100,000 for IV-E maintenance or assistance payments while its FMAP is temporarily raised to 56.2%, the federal government is obligated to send the state $56,200 (rather than $50,000 that would be required under the state’s regular FMAP of 50%). How much money is the FMAP increase expected to provide for states? As of March 30, 2020, no formal cost estimate was available. What requirements does a state need to meet to receive the FMAP increase? Under P.L. 116-127, to receive the FMAP increase states must meet the following Medicaid requirements: maintain eligibility policies for the program; continue coverage for enrolled beneficiaries; not increase individual premiums; cover COVID-19 testing, services, and treatment without cost sharing; and not increase local funding requirements. Does the FMAP increase apply to all jurisdictions operating a IV-E program? Section 6008 of P.L. 116-127 applies the FMAP increase to the territories, including Puerto Rico and the U.S. Virgin Islands, which are the only territories with IV-E programs. However, because the total amount of federal support territories may receive under the IV-E program is included in a “social services” spending cap (§1108(a) of the SSA) this change is not expected to increase their overall federal support. As of March 30, 2020, HHS-ACF counsel had not formally determined whether the FMAP increase in Section 6008 of P.L. 116-127 applies to the IV-E programs operated by the District of Columbia and by 17 tribal entities. The District of Columbia’s FMAP for purposes of Title IV-E and Medicaid is regularly fixed at 70%. However, for purposes of the IV-E program that rate is established in Title IV-E of the SSA (§474(a)) rather than in Medicaid. The “tribal FMAP” used in the IV-E program is only defined in Title IV-E (§479B(d)).

Mar 31, 2020

COVID-19: The Employee Retention Tax Credit

The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) includes an employee retention payroll tax credit intended to help businesses retain employees during the Coronavirus disease 2019, or COVID-19, public health emergency. Employee retention remains a policy concern, as a number of economic sectors have announced layoffs resulting from the COVID-19 induced economic fallout. Unemployment insurance claims have surged following these widespread layoffs. This Insight summarizes the employee retention tax credit in the CARES Act, makes comparisons to previous employee retention tax credits enacted as disaster tax relief, and highlights some economic and policy considerations. The Employee Retention Tax Credit The employee retention tax credit (ERTC) allows eligible employers to claim a payroll tax credit of up to $5,000 per employee for qualified wages paid while closed or having reduced operations due to COVID-19. The credit is computed as 50% of up to $10,000 in qualified wages paid to an eligible employee. (Eligible employees are generally those who have been employed by the employer for at least 30 days.) Health plan expenses can be treated as qualified wages when computing the credit. The credit can be taken for wages paid after March 12, 2020, and before January 1, 2021. Eligible employers are those who (1) are required to fully or partially suspend operations due to a COVID-19-related order (including nonprofit employers); or (2) have gross receipts 50% less than gross receipts in the same quarter in the prior calendar year (with the credit no longer being available once gross receipts are 80% of prior year calendar quarter gross receipts). Qualified wages depend on the number of employees the employer had during 2019. If the employer had more than 100 full-time employees, qualified wages are wages paid when employee services are not provided. (Qualified wages are limited to the amount the employee would have been paid for working an equivalent duration during the 30 days preceding the non-service period). If the employer had 100 or fewer full-time employees, all employee wages paid by eligible employers are credit-eligible. Wages taken into account for this credit cannot be taken into account for the tax credit for employer-provided paid family and medical leave. Employer Retention Tax Credit: Stylized Example Employer: Retail establishment ordered shut down as a nonessential retail business on March 20, 2020; establishment had 10 full-time employees in 2019 and still had 10 full-time employees in 2020. On March 20, 2020, employer laid off five employees; five employees continue to be paid. Wages: Between March 20, 2020, and March 31, 2020, each retained employee receives $1,500 in wages. Payroll Tax Credit: Payroll credit for this business is calculated as $1,500 × 50% × 5 = $3,750. The business paid $7,500 in wages between March 20 and March 31, and it can claim a payroll tax credit of $3,750. As a small employer, all wages paid are eligible for the tax credit, regardless of whether services were provided. The tax credit computed here reduces the employer’s employment taxes. Assume that this employer had paid $9,750 in employer payroll taxes during the first quarter (January to March) of 2020. This employer would be able receive a $3,750 credit against their first quarter 2020 payroll taxes. If the business continues to be shut down in the second quarter, the employer may be able to claim additional tax credits. The refundable structure of the payroll tax credit allows businesses to receive the benefit more quickly than typically would be the case for an income tax credit. Additionally, the Secretary of the Treasury is instructed to administer the credit in a way that allows for advance payment of the credit. Employers cannot claim this credit if they had indebtedness of a small business interruption loan forgiven. This credit does not apply to government employers. A provision provides for transfers to the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund, so that the Social Security trust funds would not be affected. The Joint Committee on Taxation (JCT) estimates that the ERTC will reduce federal revenue by $54.6 billion (the combined total for FY2020 and FY2021). Past Use of Employee Retention Tax Credits ERTCs have often been enacted as a tax policy response to major disasters. Most recently, the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Division Q of the Further Consolidated Appropriations Act, 2020; P.L. 116-94) included an income tax credit for employers who continued to pay wages to their employees after a disaster—in this case, generally those declared in 2018 and 2019—made the business inoperable. The credit is computed as 40% of the employee’s first $6,000 in wages paid between the date the business became inoperable and the date it resumed significant operations or 150 days after the last day of the incident period. As an income tax credit, nonprofit employers do not receive any benefit. As part of the general business credit, businesses with limited tax liability may be able to carry back unused tax liability to offset positive tax liability in the prior tax year, or carry the credit forward to offset future positive tax liability for up to 20 years. The JCT estimated that this provision will reduce federal revenue by $0.3 billion in FY2020. Policy and Economic Considerations The ERTC reduces the after-tax cost of compensating an employee. Because employees cost less, firms are presumably willing to pay for more hours and retain more employees than they would absent the credit. When businesses keep individuals employed these individuals continue to earn income, reducing unemployment compensation expenditures and helping to maintain individuals’ incomes. Payroll tax credits can be delivered relatively quickly, addressing potential concern about timing associated with past ERTCs. In the past, as income tax credits, employee retention credits have offered limited benefits to taxpayers with a limited income tax liability. A payroll tax credit does not depend on income tax liability. Further, payroll tax credits can be claimed by nonprofit employers. One metric for evaluating the effectiveness of ERTCs relates to the economic efficiency, or “bang for the buck,” of these incentives. In the current context, this would be credits claimed for wages paid to employees that would have otherwise been laid off, or had their hours reduced, relative to credits claimed for employees that would have remained on the payrolls, absent the tax credit. The larger this ratio, the more economically efficient the incentive. Smaller employers (those who had 100 full-time employees or fewer in 2019) will be able to claim the tax credit for wages paid to employees that would have been retained absent the incentive, as well as any employees that are now retained because of the incentive. Although the credit can be claimed only for wages paid to employees who are not working, larger firms may be able to claim the credit for wages that would have been paid had the credit not been available. (Certain large businesses have announced their intent to pay employees during COVID-19 closures, although continuing to pay employees will become more challenging the longer businesses are closed.) To the extent that this credit is claimed for employees that would have been retained absent this credit, it is less economically efficient than payments directly targeted at those who are laid off.

Mar 31, 2020

Defense Primer: United States Transportation Command

Mar 31, 2020

COVID-19: International Trade and Access to Pharmaceutical Products

Mar 30, 2020

Fostering Behavior Change During Disease Outbreaks: Insights from Ebola Response in Africa

The COVID-19 pandemic has prompted governments worldwide to seek to change behaviors on a mass scale to stem new infections. (Click here for CRS resources on COVID-19.) The challenges and successes of analogous efforts during the two largest Ebola outbreaks to date—in West Africa (2014-2016), and in eastern Democratic Republic of Congo (DRC), starting in 2018 and now seemingly waning—may offer lessons for current efforts to contain COVID-19, even though the two viruses differ in significant ways. Dubbed by some a “disease of social intimacy,” Ebola is transmitted through direct contact with the bodily fluids of an infected individual. Highly personal interactions, such as caring for infected family members and burying the dead, can spark chains of infections. In both Ebola outbreaks, authorities sought to convince or compel local populations to stop touching while exchanging greetings, avoid gathering in groups, isolate sick family members in specialized care centers, and starkly alter funeral rites. Distrust of health workers, hostility toward government officials, misinformation, and inadequate communication and transparency between responders and affected communities hindered containment efforts during both outbreaks. Local resistance to infection control measures regularly disrupted the response and sometimes turned violent. Behavior changes nevertheless ultimately helped contain Ebola in West Africa and DRC. In Liberia, researchers found that “behavioral change resulting from a successful social mobilization campaign may have averted hundreds, if not thousands” of deaths in one hard-hit county. As discussed below, successful behavioral change campaigns sought to understand the perceptions and practical needs of affected communities, ensured that communications were accurate and culturally appropriate, and recruited (and in many cases, paid) community members to spearhead local initiatives. In contrast, efforts to use force to effect behavior changes often backfired. Increasing the transparency of health responses—for example, enabling family members to communicate with loved ones undergoing treatment—may also have helped build trust in both West Africa and DRC. The U.S. Agency for International Development (USAID), which provided hundreds of millions of dollars toward Ebola response efforts in West Africa and DRC, supported peaceful community outreach and health communications campaigns through a number of programs. Figure 1. Example of Ebola Messaging in Liberia / Source: U.N. Mission in Liberia Involving community members in communication and response activities was crucial. Studies suggest that behavior change efforts were more effective when they accounted for local perceptions of the disease. Incorporating community feedback on messaging helped combat misinformation and rumors. Successful campaigns worked with local leaders and healthcare workers to craft and refine messages regarding infection control measures, which were then broadcast on the radio in local languages—and sometimes via songs recorded by regional pop stars. Effective campaigns mobilized networks of local residents—capable of understanding and overcoming suspicion—to convey information in context-appropriate ways. Engagement with community leaders and traditional healers was important for ensuring compliance with physical distancing measures such as case isolation and quarantine. Community members were also recruited to serve in teams carrying out “safe and dignified burials.” In addition to expanding response efforts, tapping into community networks helped sidestep or overcome a lack of faith in government actors. In one study, community responders—who often faced great personal risk of infection and/or violent backlash—cited feelings of “patriotic duty” and “moral responsibility” as their top motivations. At the height of the West Africa outbreak, donors also funded cash salary and indemnity payments for responders. Management and coordination of the Ebola workforce (including community volunteers as well as health workers) varied across affected countries, but such initiatives broadly sought to ensure that local responders were paid directly and on time, often using mobile money transfers. Effective behavior changes were sensitive to local norms and practical needs. Studies indicate that critical behavioral shifts took hold only when public health messaging considered local cultures. Burials, which carry important cultural weight and can be vectors of Ebola transmission, were one example. In both West Africa and DRC, practices that health authorities initially urged (which did not allow family members to view the body, choose the location, or play any role in the funeral service) provoked backlash and resistance. Ultimately, burials that allowed for safe community participation and religious observance were more widely accepted and helped stem infections. Along with community members, a network of anthropologists also disseminated information on cultural sensitivities and best practices to responders. Observers also stressed the importance of aligning health communications with practical needs. Focus groups in Liberia indicated that they were inundated with basic information about Ebola, but received little guidance, for instance, on how to manage a family during quarantine or respond to a potential case prior to the arrival of health teams. Heavy-handed security efforts often backfired. At the height of the Ebola outbreaks in Liberia (2014) and DRC (2019), security force actions reportedly spurred resistance to behavior changes and sparked violence. When soldiers and police tried to enforce a mass quarantine by forcibly sealing off a large slum in Liberia, residents rioted. Discussions with community leaders, police patrols, and the provision of food and other supplies eased tensions. In DRC, a practice of stationing armed personnel at health facilities caused fear and thus “made it more challenging to stop the outbreak,” while also dissuading people from seeking other health care, according to Doctors without Borders. In extreme cases, police and soldiers reportedly forced suspected Ebola patients into quarantine centers before confirming whether they were infected, and opened fire on grieving family members who refused to turn over loved ones’ bodies to safe burial teams. Such incidents undermined trust in containment efforts and may have spurred attacks on responders. Outlook. Some pandemic response challenges and breakthroughs may be unique to specific outbreak settings, while others may be more universal. As Congress continues to examine U.S. domestic responses to COVID-19, and to appropriate and oversee funds in support of global response efforts, Members may consider lessons learned from Ebola and other disease outbreak responses to date.

Mar 27, 2020

COVID-19 and the Recovery Rebates in the CARES Act: Social Security and Supplemental Security Income Beneficiaries

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, provides emergency relief measures in response to the Coronavirus Disease 2019 (COVID-19) pandemic. Section 2201 of the CARES Act provides recovery rebates for most individuals, structured as automatically advanced tax credits to be disbursed by the Treasury Department. This Insight addresses the recovery rebates from the perspective of Social Security and Supplemental Security Income (SSI) beneficiaries. Social Security and SSI Social Security, or Old Age, Survivors, and Disability Insurance, provides monthly cash benefits to insured retired or disabled workers and their family members and to the family members of insured deceased workers. In February 2020, nearly 64.4 million individuals received Social Security benefits, including 48.5 million retired workers and family members, 9.9 million disabled workers and family members, and 5.9 million survivors of deceased workers. SSI is a federal assistance program that provides monthly cash payments to aged, blind, or disabled individuals (including blind or disabled children) who have limited assets and little or no Social Security or other income. In February 2020, almost 8.1 million individuals received SSI payments, including 1.1 million children under 18 years old, 4.6 million individuals aged 18-64, and 2.3 million individuals aged 65 or older. Social Security beneficiaries with low Social Security benefits may receive a partial SSI payment if they have other income and assets within prescribed limits and meet certain other requirements. In February 2020, one-third of SSI recipients (2.7 million individuals) received both SSI and Social Security benefits. Recovery Rebates Eligible individuals are to receive a recovery rebate of $1,200 per person ($2,400 for married joint filers) as an automatically advanced credit against their 2020 federal income tax liability via direct deposit or a check by mail. Eligible individuals are to receive an additional $500 for each eligible child under 17 years old who qualifies for the child tax credit. The recovery rebate is reduced by $5 for every $100 of adjusted gross income (AGI) above $75,000 for individuals, $112,500 for heads of households, and $150,000 for married joint filers. Consequently, the rebate is not payable to individuals (with no eligible children) with AGI above $99,000 or married joint filers (with no eligible children) with AGI above $198,000. A married couple with two eligible children is ineligible for the rebate with AGI above $218,000. The recovery rebate is to be automatically advanced to households in 2020 based on their 2019 federal income tax return. For households that had not filed a 2019 return, the rebate is to be automatically advanced based on 2018 return information. For eligible individuals who were Social Security or Railroad Retirement beneficiaries and who had incomes low enough to not require a 2019 or 2018 return, a 2019 Social Security Benefit Statement or Railroad Retirement Benefit Statement is to be used. The rebate is not subject to federal income tax. Nonresident aliens, individuals who could be claimed as a dependent by another taxpayer, and estates or trusts are ineligible for the recovery rebate. Taxpayers who do not have a Social Security number for themselves, their spouse (if married filing jointly), and their dependent children also are ineligible (with certain limited exceptions). Rebates for Social Security Beneficiaries and the Social Security Benefit Statement (SSA-1099) Some Social Security beneficiaries are not required to file a federal income tax return because their gross income is less than the standard deduction amount. A 2017 study found that 34% of nonfilers in 2006 were aged 65 or older and 90% of nonfilers aged 65 or older had Social Security income. For these individuals, information from the 2019 Social Security Benefit Statement (SSA-1099) is to be used to advance the recovery rebate. Thus, Social Security beneficiaries—retired workers, disabled workers, eligible family members, and survivors—who did not file a federal income tax return for 2018 or 2019 are to receive the rebate, provided they meet the other eligibility requirements. A Social Security beneficiary who is claimed as a dependent on a taxpayer’s return is ineligible for the rebate. All Social Security beneficiaries receive Form SSA-1099, including those who concurrently receive Social Security and SSI benefits. (Form SSA-1099 is not provided to SSI-only recipients.) It shows the total amount of Social Security benefits received in the previous year. Individuals may request a replacement copy of their Form SSA-1099 using their online my Social Security account. Rebates for Nonfilers, Including SSI Recipients In general, individuals who did not file a federal income tax return for 2018 or 2019 and who did not receive Form SSA-1099 are ineligible for the recovery rebate in 2020. Many SSI recipients are not required to file a federal income tax return. SSI payments, as well as payments from analogous social benefit programs (i.e., programs based on need), are not considered gross income for federal tax purposes under a limited general welfare exclusion. A 2017 study found that 11% of nonfilers in 2006 had SSI income, compared with 1% of filers. SSI recipients who did not file a federal income tax return for 2018 or 2019 and who did not concurrently receive Social Security benefits (i.e., did not receive Form SSA-1099) are not to receive the recovery rebate in 2020. Such individuals are to receive the rebate if they subsequently file a 2019 tax return (the filing date has been extended to July 15) or file a 2020 tax return in 2021. An SSI recipient who is claimed as a dependent on a taxpayer’s return is ineligible for the rebate. The Internal Revenue Service is encouraging anyone who has not filed a federal income tax return for 2018 or a previous year to act now. The CARES Act requires the Treasury Department and the Social Security Administration to provide information regarding the availability of the recovery rebate, including information for individuals who may not have filed a tax return for 2018 or 2019. As with any tax refund, the recovery rebate is not countable as income or resources for a 12-month period in determining eligibility for, or the amount of assistance provided by, any federal program, such as SSI, or any state or local program financed in whole or in part with federal funds.

Mar 27, 2020

Limits on Business Interest Deductions Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act

Thin capitalization rules, broadly, limit the amount of debt that can generate deductible interest for the purpose of calculating taxable income. Limits on the tax deduction for business interest restrictions have been relaxed by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748, as amended) providing economic stimulus and relief for taxpayers due to the expected slowdown of the economy because of the coronavirus pandemic. These restrictions, also referred to by their Internal Revenue Code Section 163(j), were expanded by the 2017 tax revision, P.L. 115-97. Changes in P.L. 115-97, Popularly Known as the “Tax Cuts and Jobs Act (TCJA)” Restrictions on net interest deductions were significantly tightened in the 2017 tax legislation. Although taken as a whole the tax revision was a tax cut, a number of provisions were enacted to limit certain deductions, among them the restrictions on interest deductions. Rules Prior to TCJA Prior to the TCJA, the thin capitalization rules were narrowly focused and limited. They applied only to corporations and only to interest paid to related parties. Their objective was largely to limit earnings stripping by multinational corporations that located debt in the United States. Even so, the rules could be viewed as relatively liberal. They applied only to firms whose debt to equity ratio exceeded 1.5 to 1. Interest deductions were limited to 50% of earnings before interest, taxes, depreciation, amortization, and depletion (EBITDA). Disallowed deductions could be carried forward for three years. Proposals to further restrict the thin capitalization rules had been made for some time to address corporate inversions, in which firms shifted their headquarters to a foreign country in order to reduce profits in the United States, in some cases by earnings stripping through locating debt in the United States. Changes in TCJA The TCJA tightened the limit on net interest deductions by eliminating a safe harbor for debt-to-equity ratios at 1.5 to 1 and below and by reducing the interest deduction cap to 30%. The TCJA also changed the income measure to income before interest and taxes (EBIT), which defined a narrower measure of income and thus imposed a further limit on interest deductions, although this change was not scheduled to take place until 2022. These changes became part of a host of changes that affected the international tax regime. The restrictions were also broadened to shift the focus toward borrowing in general by applying the rules to all interest, not just related party interest, and by increasing the coverage to all businesses, not just corporations. Certain businesses were exempt from the changes. Smaller businesses with less than an average of $25 million in gross receipts in the past three years were excluded. (This exclusion aggregated businesses under common control.) Certain regulated utilities are exempt. Real estate businesses can elect out of the interest restriction by adopting longer depreciation periods: 30 years rather than 27.5 years for residential structures and 40 years rather than 39 years for nonresidential structures. Farm businesses can also elect out by using longer depreciation periods (generally 15 years or 20 years rather than 10 years) and slower methods for certain assets (structures, land improvements, and certain trees and vines). Interest used to finance inventory for motor vehicles is exempt, although the exemption does not apply to vehicles that are not self-propelled, an exclusion that has raised some concerns about non-self-propelled trailers and campers. Any unused interest deductions can be carried forward indefinitely. The change made by the TCJA was estimated to raise $18 billion in its first full fiscal year (FY2019), and $20 billion in FY2020. The revenue gain was projected to increase to $30 billion after the change from EBITDA to EBIT was fully reflected, in FY2023. Reasons for Change In the House Report on the legislation, the reason given for the expanded restrictions was to reduce the differentials between debt and equity finance (debt-financed investments are more favorably treated). The extension to all forms of business organizations was made to reduce differentials arising from choice of entity form. The exclusion for smaller businesses was provided because these businesses, even if heavily leveraged, are not as likely to have as big an effect on the economy in times of financial distress and because they have less access to public equity markets. This rationale suggests a concern about excessive leveraging making firms more prone to failure. The exclusions for certain industries were in recognition that these industries have special characteristics. Temporarily Relaxing the Interest Restrictions in the CARES Act The CARES Act increases the limit on interest deductions from 30% to 50% for 2019 and 2020. It also allows firms to use 2019 incomes for the 2020 limitation. The expected downturn in the economy would make the effect of the interest restriction more widely felt, as firms’ profits fell, leading to a smaller base to calculate the interest cap in 2020. The increased deduction will increase liquidity for firms that have or take on more debt and firms subject to the interest cap would find borrowing, which might be needed to meet basic business needs as revenues fell, less costly. The provision is estimated to cost $13.4 billion for the two-year period.

Mar 27, 2020

COVID-19 and Stimulus Payments to Individuals: Summary of the 2020 Recovery Rebates in H.R. 748

H.R. 748, which passed in the Senate on March 25, proposes direct payments intended to broadly stimulate the economy in response to concerns about an economic slowdown stemming from the COVID-19 pandemic. This Insight provides a brief overview of the proposed 2020 recovery rebates included in H.R. 748. These payments are virtually identical to those included in bill text circulated on March 22, 2020. The proposed 2020 recovery rebates equal $1,200 per person ($2,400 for married taxpayers filing a joint tax return) and $500 per child. These amounts would phase down for higher-income taxpayers. These payments are structured as tax credits automatically advanced to households in 2020 if they filed a 2019 income tax return and would be received as a direct deposit or check by mail. If a 2019 return had not been filed, rebates would be advanced automatically based on 2018 return information. Social Security and Railroad Retirement recipients who did not file an income tax return would have the credit automatically advanced in 2020 based on information on their 2019 Social Security or Railroad Retirement Benefit Statement. Credit Amount The proposed credit equals $1,200 per person ($2,400 for married joint filers) for eligible individuals. Generally, an eligible individual is any individual excluding (1) nonresident aliens, (2) individuals who can be claimed as a dependent by another taxpayer, and (3) an estate or trust. Individuals eligible for the credit would receive an additional $500 for each child that qualifies for the child tax credit—generally a taxpayer’s dependent child that is aged 16 or younger. The total proposed credit phases out at a rate of 5% of adjusted gross income (AGI) above $75,000 ($112,500 for head of household filers and $150,000 for married joint returns). An illustration of the amount of the rebate by income level is provided in the figure below. / As with any tax refund, these payments would not count as income or resources for a 12-month period in determining eligibility for, or the amount of assistance provided by, any federally funded public benefit program. In addition, these payments would not be taxable. The proposed credit would be a fixed amount until income reaches the phaseout level. Lower-income taxpayers with little or no income tax liability would be eligible for a tax credit equal in dollar value to that received by middle-income and upper-middle-income taxpayers. Hence, as a percentage of income, this rebate would be largest for the lowest-income recipients. The tax credit would phase out at the upper end of the distribution as shown in the figure above. Estimates by the Congressional Research Service and the Tax Policy Center suggest these payments would provide significant benefits to eligible low- and middle-income households. Other Features of the Proposed 2020 Recovery Rebates SSN Requirement: Taxpayers would be required to provide a Social Security number (SSN) for themselves, their spouse (if married filing jointly), and any child for whom they claim the $500 child credit. Adoption taxpayer ID numbers (ATINs) are also acceptable for adopted children. Taxpayers who provide an individual taxpayer identification number (ITIN) would be ineligible for the credit. Hence, married couples in which one spouse has an SSN and another has an ITIN would generally be ineligible for the credit. The bill would relax these ID requirements for married joint filers in which at least one spouse is a member of the Armed Forces. In those cases, only one spouse must provide an SSN. Public Awareness Campaign: The bill would instruct the Treasury Secretary, in coordination with the Commissioner of Social Security and the heads of other relevant federal agencies, to provide information about the payment to individuals who may not have filed a 2019 or 2018 income tax return. Notice to Taxpayers: The bill would require that individuals identified as eligible to receive a payment be sent a notice that provides them with information on the amount of the payment, how it will be delivered (direct deposit/paper check), and a phone number at the Internal Revenue Service (IRS) to call if the payment is not received. Nonresident Aliens: The credit would not be available to nonresident aliens. Territories: The bill includes a provision requiring the U.S. Treasury to make payments to individuals in the territories (mirror code and non-mirror code) equal to the aggregate amount of credits claimed by their residents. Past-Due Debts: The credit cannot be reduced for certain unpaid debts, including debts owed to a federal agency (excluding child support), past-due state income taxes, federal taxes, or unemployment compensation debts. Appropriations: The bill would appropriate $617.35 million in FY2020 for the administration of these payments. Advancing the Proposed 2020 Recovery Rebates The bill would automatically advance the credit, which would be received as a direct deposit or a check by mail. The advancing provision would allow taxpayers to receive this credit before 2020 tax returns are filed in early 2021. The advanced credit amount would be estimated by the IRS based on taxpayers’ 2019 income tax return information (if the taxpayer did not file a 2019 income tax return, 2018 income tax return information could be used instead). For Social Security and Railroad Retirement recipients, if neither a 2019 nor a 2018 income tax return were filed, then information from their 2019 Social Security or Railroad Retirement Benefit Statement (SSA-1099 or RRB-1099, respectively) could be used instead. To expedite payments, the bill would allow the recovery rebates to be delivered electronically to any account which the taxpayer had authorized to receive a tax refund or other federal payment on or after January 1, 2018. Otherwise, paper checks would be issued. If, when taxpayers file their 2020 income tax returns in 2021, they find that the advanced credit is greater than the actual credit, then they would not be required to repay the excess credit. In contrast, if the advanced credit is less than the actual credit, then taxpayers would be able to claim the difference on their 2020 income tax returns. Nonfilers Taxpayers with gross income less than the standard deduction amount are not required to file a federal income tax return. In general, public cash assistance for low-income populations, such as Supplemental Security Income, is not considered gross income under a limited general welfare exclusion. Hence, many low-income individuals and families whose income is largely from public assistance may not have filed a 2018 or 2019 income tax return and as such, would not receive these rebates in 2020. A 2017 study found that “nonfilers” were more likely to be either seniors or recipients of public assistance compared to those who filed a tax return.

Mar 26, 2020

Unemployment Insurance Provisions in the CARES Act

Mar 26, 2020

Low Oil Prices: Prospects for Global Oil Market Balance

Reduced travel, slowing economic activity, and petroleum-product demand suppression related to the COVID-19 outbreak, combined with announced plans to increase crude oil supplies, are creating expectations of an imbalanced and significantly oversupplied near-term petroleum market. Oversupply expectations have contributed to oil prices declining nearly 60% since January. Some regional oil prices have been less than $10 per barrel. While low oil prices are generally positive for consumers, current price levels are causing financial stress for the U.S. oil sector and several policy options could be explored that might provide some degree of relief. Additionally, the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) have jointly expressed concern about the welfare of citizens in developing countries that rely on oil revenues. Market balance—supply minus demand—is one important factor that influences oil prices, refinery crude oil acquisition cost, and the price of consumer petroleum products (e.g., gasoline). Oil market characteristics—generally inelastic supply and demand in the short term—can contribute to market conditions that could result in volatile price movements (both up and down) when supply and demand are imbalanced by 1 to 2 million barrels per day (Mbpd) for a brief or extended period. Preliminary projections—subject to revision—indicate that imbalance could be as high as 12 Mbpd in the second quarter of 2020 (see Figure 1). Prolonged oversupply periods at this level could test petroleum storage and logistical limits and could further depress oil prices. Figure 1. Monthly Petroleum Market Supply/Demand Balance and WTI Spot Price January 2014-June 2020 / Source: Compiled by CRS. West Texas Intermediate (WTI) spot price from Bloomberg L.P. Actual market balances from Energy Intelligence Group, accessed through Bloomberg L.P. (subscription required). High and low market balance estimates are based on a CRS review of reporting for demand and market-surplus projections from various banks and market analysis firms. Notes: WTI March spot price on March 25, 2020. Market balance projections are preliminary and are subject to revision as COVID-19 demand impacts and actual supply levels become clear. Market Balancing Options Balancing petroleum markets during normal periods of economic activity is challenging due to demand uncertainties, unplanned supply outages, and geopolitical events. Generally, OPEC production decisions aim to manage oil supply in order to achieve its stated mission to stabilize markets. Since 2017, OPEC and a group of non-OPEC countries (collectively OPEC+), including Russia, have engaged in voluntary agreements to reduce oil production. Current oversupply expectations are primarily the result of demand suppression related to COVID-19. Market balance in the short-term would largely depend on economic activity returning to pre-outbreak levels, the timeframe for which is uncertain as actual demand impacts are unknown. Addressing the supply side of estimated market imbalances could take the form of price-responsive adjustments, an OPEC+ production agreement, or some sort of government intervention. Price-Responsive Supply Adjustments Current market and price conditions create challenges for all oil companies and oil producing countries, including the U.S. oil sector. Efforts to manage financial impacts are reportedly happening at the company (e.g., capital expenditure reductions and employment adjustments) and country (e.g., budget/spending reductions) level. While price-responsive adjustments could motivate efficiency within the oil sector, such an approach—due to the uncertain timeframe for demand and price recovery—could also have long-term adverse effects on some companies and the locations in which they operate. OPEC+ Production Agreement OPEC+ could resume its collective supply management activities in an effort to stabilize oil markets. However, the outlook for OPEC+ supply adjustments is uncertain after the group failed to agree on an OPEC recommendation to further reduce oil production through 2020. Exactly how a new supply agreement might be structured is uncertain. OPEC+ could execute its existing voluntary agreement—that officially expires on March 31—and produce oil at pre-outbreak levels. Doing so could temper oversupply expectations related to production increases announced by some OPEC+ members (Saudi Arabia and others). The Secretary of State has spoken with Saudi Arabia leadership about stabilizing energy markets. Government Supply Intervention: Historical Perspective Among countries outside of the OPEC+ group with an oil industry operated by private companies, some governments (state, provincial, and federal) have intervened to manage production levels. These efforts have generally aimed to address domestic or regional market imbalances. For example, the government of Alberta, Canada, has an active oil production limit program. Instituted in December 2018, the curtailment policy aims to match production volumes with transportation—pipeline and rail—capacity in order to support regional prices that influence producer revenues and provincial royalty receipts. Historically, the U.S. federal government and some oil-producing states have engaged in efforts to curtail oil supply, including deployment of state militia (Oklahoma) and the National Guard (Texas), state-level prorationing, interstate oil transport prohibitions, and federal production targets. In the 1930s—a domestic oversupply period with regional prices as low as 10¢ per barrel—Congress enacted laws aimed at managing domestic oil output. Some examples include: National Industrial Recovery Act (NIRA, P.L. 73-67): enacted in 1933 and held unconstitutional in 1935, NIRA authorized the President to prohibit interstate transportation of petroleum in excess of volumes allowed by state laws and regulations (“contraband oil”). NIRA authorities were invoked to impose federal oil production quotas for each oil-producing state. Hot Oil Act (P.L. 74-14, 15 U.S. Code §715): reinstated federal regulation of interstate transportation of “contraband oil.” Public Resolution 74-64: provided congressional consent for an interstate compact to conserve oil and gas. The Interstate Oil and Gas Compact Commission (IOGCC)—originally conceived to address overproduction and depressed prices—engages in resource conservation and its charter indicates that limiting production to stabilize prices is not an intended purpose. Regulatory agencies in Oklahoma, Texas, Louisiana, and other states have prorationed oil supply within their respective jurisdictions. Those efforts, which inherently provided some level of price support, essentially ended in the early 1970s as domestic demand exceeded domestic production. Reinstituting these authorities to address current oil market conditions—a concept recently revisited—could raise policy, legal, and administrative questions.

Mar 26, 2020

The National Consortium of Telehealth Resource Centers: COVID-19 Assistance

On January 31, 2020, the Secretary of the Department of Health and Human Services (HHS) declared Coronavirus Disease 2019 (COVID-19) a Public Health Emergency (PHE). During this public health emergency, the Secretary of HHS has taken action to encourage the use of telehealth. Telehealth generally refers to a health care provider’s use of information and communication technology in the delivery of clinical and nonclinical health care services. The use of telehealth during public health emergencies can assist health care professionals with, for example, reserving in-person care for patients with critical health care needs and diminishing the spread of communicable diseases. Some stakeholders, however, are experiencing challenges with establishing, implementing, and offering virtual health care services through telehealth programs. The National Consortium of Telehealth Resource Centers, referred to in this report as the TRC Consortium, is helping stakeholders (state and local health care facilities, health care administrators, chief financial officers, health care providers, and patients) respond to COVID-19 through the use of telehealth. The TRC Consortium is the grantee of the Telehealth Resource Center Program, which was established by the Health Care Safety Net Amendments of 2002 (P.L. 107-251, as amended). The TRC Consortium provides short- and long-term assistance, access to telehealth experts, policy analysis, technology assessments, education and training materials, and specialized tools and templates.

Mar 26, 2020

Treasury’s Exchange Stabilization Fund and COVID-19

Mar 26, 2020

COVID-19 Stimulus Assistance to Small Businesses: Issues and Policy Options

The U.S. Small Business Administration (SBA) administers several types of programs to support small businesses, including direct disaster loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; loan guaranty and venture capital programs to enhance small business access to capital; small business management and technical assistance training programs to assist business formation and expansion; and contracting programs to increase small business opportunities in federal contracting. Congressional interest in these programs has always been high, primarily because small businesses are viewed as a means to stimulate economic activity and create jobs, but it has become especially acute in the wake of the coronavirus (COVID-19) pandemic’s widespread adverse economic impact on the national economy, including productivity losses, supply chain disruptions, major labor dislocation, and significant financial pressure on both businesses and households. This report provides a brief description of the SBA’s programs, examines congressional action to assist small businesses during and immediately following the Great Recession (2007-2009), and discusses recent legislation to assist small businesses adversely affected by the COVID-19 pandemic. This legislation includes P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, which provided the SBA an additional $20 million for SBA disaster assistance administrative expenses and deemed the coronavirus to be a disaster under the SBA’s Economic Injury Disaster Loan (EIDL) program. This change made economic injury from the coronavirus an eligible EIDL expense. S. 3519, the Small Business Debt Relief Act, as introduced, which would authorize to be appropriated $16.8 billion to pay the principal, interest, and any associated fees that are owed on a 7(a) loan, 504/CDC loan, or Microloan for six-months. S. 3518, the COVID-19 RELIEF for Small Businesses Act of 2020, as introduced, which would make numerous changes to the SBA’s programs. S. 3548, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as introduced and amended, which would make numerous changes to the SBA’s programs. Many of the proposals being considered to address the needs of small businesses adversely affected by the COVID-19 pandemic were used to address the severe economic slowdown during and immediately following the Great Recession. The main difference today is that given the unique nature of the COVID-19 pandemic’s impact on households, especially physical distancing and the resulting decrease in consumer spending, there is an added emphasis today on SBA loan deferrals and loan forgiveness. One lesson learned from the actions taken during the 111th Congress to assist small businesses during and immediately following the Great Recession is the potential benefits that can be derived from providing additional funding for the SBA’s Office of Inspector General (OIG) and the Government Accountability Office (GAO). GAO and the SBA’s OIG can provide Congress information that could prove useful as Congress engages in congressional oversight of the SBA’s administration of the stimulus package. It could also provide an early warning if unforeseen administrative problems should arise, and, through investigations and audits, serve as a deterrent to fraud. Also, requiring the SBA to report regularly on its implementation of the stimulus package could promote transparency and assist Congress in performing its oversight responsibilities. Requiring both output and outcome performance measures and requiring the SBA to report this information to Congress and the public by posting that information on the SBA’s website could enhance congressional oversight and public confidence in the SBA’s efforts to assist small businesses.

Mar 25, 2020

COVID-19 and U.S. Iran Policy

Overview The spread in Iran of COVID-19 (the disease caused by the virus SARS-CoV-2) has raised questions about the possible effects of U.S. policy on the capacity of Iran to cope with the outbreak. Since May 2018, when the Trump Administration withdrew the United States from the 2015 multilateral Iran nuclear agreement (Joint Comprehensive Plan of Action, JCPOA), the Administration has reimposed all U.S. sanctions that were in place prior to that agreement and added further sanctions. The U.S. sanctions target virtually every economic sector in Iran, but at least technically exempt transactions involving humanitarian items. Iranian officials argue that the U.S. sanctions—which constitute the core of a U.S. “maximum pressure” campaign intended to alter Iran’s objectionable behavior—are impeding Iran’s ability to respond to the coronavirus outbreak. Scope of the Problem Iran has been the epicenter of the COVID-19 pandemic within the Middle East region, reporting a number of COVID-19 infections and deaths from the infection (27,000 and 2,075, respectively, as of March 25) many times higher than those of other regional states. Several senior members of key regime decision-making bodies have died of the disease, and numerous officials, including about 10% of Iran’s 290-seat parliament, have tested positive for COVID-19. Reflecting widespread skepticism of Iran’s transparency about the extent of the outbreak, Secretary of State Michael Pompeo has said that Iran’s regime has “lied about [the extent of] the Wuhan virus outbreak [in Iran] for weeks.” Whereas unrest has broken out in Iran in recent months over reduction of fuel subsidies and other government actions, to date the coronavirus outbreak apparently has not sparked renewed domestic unrest. Iran has also become more isolated in the region as several of its neighbors have banned travel to and from Iran. U.S. Policy Dimension Iranian leaders, as well as a wide variety of observers claim that the extensive U.S. sanctions on Iran are impeding Iran’s ability to cope with the COVID-19 outbreak. As noted above, since 2018, the Trump Administration has articulated a policy of “maximum pressure” on Iran, based on imposition of economic sanctions on every sector or Iran’s economy. Sales to Iran of humanitarian items, including medicine and medical equipment, are generally exempt from any U.S. sanctions. However, executives of many global firms, particularly major international banks, have indicated that they are uncertain about how U.S. sanctions might be applied and have therefore refrained from undertaking any transactions involving Iran, including sales of humanitarian items. Some accounts draw a direct connection between the effect of U.S sanctions and Iran’s struggles to contain COVID-19 cases. As the number of confirmed cases in Iran increased, Iran began to face shortages of personal protective equipment and other items needed to address the disease: respiratory masks and contamination suits, symptom relief medication, disinfectants, and related equipment. Iran produces many of these products domestically, but supplies in pharmacies and stores began to run low in February 2020. Iranian importers have had difficulty importing new inventory, at least in part because of U.S. sanctions, and Iran’s factories are struggling to ramp up production to keep up with the rising demand. Yet, there are no proven treatments or preventive vaccines for COVID-19, making it difficult to conclude that U.S. sanctions are preventing Iran from curing those infected. Iran has shut numerous shrines and other religious and cultural sites to encourage social distancing, but President Hassan Rouhani has refused, to date, to impose broad lockdowns and quarantines to prevent the further spread of COVID-19. As the spread of COVID-19 worsened in Iran, U.S. officials undertook measures to try to ensure that U.S. policy did not impede Iran’s response to the disease. In early March 2020, U.S. officials issued guidance that transactions involving Iran’s foreign exchange assets held abroad, when used to buy humanitarian items, would not face U.S. sanctions. The intent of that guidance was to facilitate Iran’s ability to use its Central Bank accounts abroad, which might hold nearly $90 billion in total assets, to purchase medical supplies. The revised guidance came after U.S. officials, in January 2020, activated a new “Swiss Humanitarian Channel” program, announced in October 2019, to facilitate sales of humanitarian items to Iran. That channel represented an apparent response to longstanding criticism that U.S. sanctions are having the unintended effect of prohibiting the flow of medicines to Iran. The issue of U.S. and international assistance to Iran also has arisen. At a White House briefing on the COVID-19 pandemic on March 20, Secretary of State Michael Pompeo stated that “We’ve offered to provide assistance to the Iranians as well. I talked with Dr. [Tedros Ghebreyesus] from the World Health Organization about this. We’re doing everything we can to facilitate both the humanitarian assistance moving in, and to make sure that financial transactions connected to that can take place as well. There is no sanction on medicines going to Iran.” On March 22, Iran’s Supreme Leader Ayatollah Ali Khamene’i confirmed that Iran refused U.S. foreign assistance, claiming that the offer was a U.S. plot to spread the disease in Iran rather than help Iran combat it. The Administration may support, or at least abstain from blocking, Iran’s request for a $5 billion loan from the International Monetary Fund (IMF) that Iran says it needs to respond to the COVID-19 outbreak. Section 1621 of the International Financial Institutions Act (22 U.S.C. 262p-4q) et seq.) requires the United States to vote against a loan by the IMF or other international financial institutions to any country designated as a state sponsor of terrorism. Iran is so designated. However, the Administration has discretion to refrain from a negative vote for humanitarian reasons in certain circumstances.

Mar 25, 2020

Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (P.L. 116-123): First Coronavirus Supplemental

In the early months of 2020, the federal government began to express concern over the global outbreak of Coronavirus Disease 2019 (COVID-19). COVID-19 is a viral respiratory illness caused by a novel coronavirus. By late January, the Secretary of the U.S. Department of Health and Human Services (HHS) had invoked certain authorities to direct existing funds to respond to the COVID-19 outbreak. The HHS Secretary declared COVID-19 to be a Public Health Emergency, effective January 27, 2020. On February 24, 2020, the Trump Administration submitted an initial emergency supplemental appropriations request to Congress. The Administration requested $1.25 billion in new funds for the HHS Public Health and Social Services Emergency Fund (PHSSEF) to support COVID-19 response efforts. The request included a number of other proposals, mostly related to repurposing existing funds from across the government toward response activities. All told, the Administration estimated needing to allocate about $2.5 billion toward COVID-19 response efforts. On March 4, 2020, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (H.R. 6074), was introduced in the House. The bill was passed by the House (415-2) on March 4 and by the Senate (96-1) on March 5. The bill was signed into law (P.L. 116-123) on March 6. This supplemental appropriations act is the first such act to be enacted in the aftermath of the COVID-19 outbreak. Any subsequent such actions are beyond the scope of the report. According to the Congressional Budget Office (CBO), Division A of P.L. 116-123 provides roughly $7.8 billion in discretionary supplemental appropriations. (CBO estimates that provisions in Division B will cost roughly $490 million, but those provisions are not the focus of this report.) The funds in Division A of P.L. 116-123 are primarily intended to prevent, prepare for, and respond to the coronavirus. (For purposes of the bill, the term coronavirus refers to SARS-CoV-2, the virus that causes COVID-2019, or another coronavirus with pandemic potential.) The majority of the funds in Division A are appropriated to HHS agencies and accounts. In total, the bill appropriates $6.5 billion to HHS, representing 84% of all funds in the bill. In general, these funds are for health emergency prevention, preparedness, and response activities related to COVID-19. Funds largely support domestic activities, but certain accounts include funds that may be allocated for global health activities. The HHS funds are distributed as follows: The PHSSEF receives almost half of all funds in Division A, with appropriations totaling $3.4 billion when including $300 million in appropriations that are contingent upon future actions by HHS. PHSSEF funds are provided for the development of countermeasures and vaccines, as well as for the purchase of vaccines, therapeutics, diagnostics, necessary medical supplies, medical surge capacity, and administrative activities. The Centers for Disease Control and Prevention (CDC) receives the next-largest share of all funds in the supplemental: $2.8 billion, accounting for more than a quarter of all funds in Division A. In general, these funds are intended to support core public health functions, including surveillance, laboratory capacity, infection control, and other activities. The funds are also for global disease detection and emergency response, as well as for activities carried out using the Infectious Diseases Rapid Response Reserve Fund (IDRRRF). Remaining HHS funds are appropriated to the Food and Drug Administration ($61 million) and the National Institutes of Health ($836 million). In addition to amounts appropriated to HHS, the supplemental provides $20 million in administrative funds for the Disaster Loans Program Account within the Small Business Administration (SBA). The supplemental also includes provisions clarifying that SBA disaster loans and economic injury disaster loans may be made in response to COVID-19. Finally, the supplemental provides nearly $1.3 billion (about 16% of all funds in Division A) to support foreign operations activities across several agencies and funding mechanisms. This includes funding to help the Department of State maintain consular operations, reimburse for evacuation expenses, and support emergency preparedness. Additional funds are provided for global health, international disaster assistance, economic support, and certain oversight activities.

Mar 25, 2020

Section 1135 Waivers and COVID-19: An Overview

Mar 25, 2020

Banking Regulators’ Response to COVID-19

Economic conditions have deteriorated rapidly in the past few weeks, as the coronavirus (COVID-19) outbreak has caused many businesses and public institutions to limit or close their operations. Policymakers are considering a range of programs and policy options to assist Americans facing increased financial hardship and those incurring time off work because of illness. Once it became clear that the COVID-19 outbreak would have serious financial ramifications for households and businesses, the federal agencies that regulate banks and credit unions—the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and Consumer Financial Protection Bureau (collectively referred to as the bank regulators), and the National Credit Union Administration—responded in two general ways as discussed in this Insight: measures to encourage banks to work with customers affected by COVID-19; and adjustments to bank regulation related to capital, liquidity, and supervision. Assisting Affected Consumers Regulators’ efforts to deal with the potential effects of COVID-19 began in early March with attempts to ensure that depository institutions were adequately planning for the potential risks. On March 6, 2020, the Federal Financial Institutions Examination Council (FFIEC) updated its influenza pandemic guidance to minimize the potentially adverse effects of COVID-19. The guidance identifies business continuity plans as a key tool to address pandemics and provides a comprehensive framework to ensure the continuation of critical operations. In the past month, regulators have shifted focus to providing guidance on how to address and serve customers affected by the virus. (For more on policy options for financial services companies responding to customers affected by COVID-19, see CRS Insight IN11244, The Financial Industry and Consumers Struggling to Pay Bills during the COVID-19 (Coronavirus) Outbreak, by Cheryl R. Cooper.) March 9, 2020: the banking regulators issued a joint statement to encourage depository institutions to meet the financial services needs of their customers and members in COVID-19-affected areas. March 13: each of the banking regulators issued guidance identifying efforts to work with customers by waiving fees, offering repayment accommodations, extending payment due dates, increasing credit card limits, and increasing ATM withdrawal limits. March 19, 2020: the banking regulators issued a new statement encouraging depository institutions to continue working with affected customers and communities—particularly those that are low- and moderate-income—by providing favorable consideration for those activities pursuant to the Community Reinvestment Act (CRA). March 22, 2020: each of the banking regulators issued an interagency statement to allow banks to provide certain modifications to loans without designating them as a troubled debt restructurings (TDRs). Under accounting principles, a TDR designation could have negative consequences for a bank’s financial and regulatory reporting requirements. Regulatory Adjustments Because banks are vital to the economy’s functioning, the government has created taxpayer-backed “safety nets” to prevent them from failing and to protect depositors. To reduce the likelihood that these safety nets need to be used, regulatory agencies have implemented “safety and soundness” regulations, which include rules related to banks’ capital and liquidity. Bank regulators also have the authority to supervise banks, which includes examinations and off-site monitoring, to ensure they are well run and following these rules. In response to COVID-19, bank regulators have made certain adjustments to banking regulation and supervision. Capital allows a bank to withstand unanticipated losses, up to a point, without failing. Unlike liabilities, which place specific and inflexible payment obligations on a bank, the value of bank capital can be written down in the event of unexpected losses. To reduce the likelihood of bank failures, regulators require banks to hold certain minimum amounts of capital to absorb losses and liquid assets to meet obligations. The value and riskiness of a bank’s assets and its size determines how much capital and liquidity it must hold. In addition, banks must hold certain amounts of capital over the minimums, called buffers, to avoid restrictions on capital distributions, such as dividends. Certain large banks also are required to hold liquidity buffers. Most banks elect to hold buffers in excess of any requirement to ensure they stay above minimums and distribution restriction thresholds in the event of an economic downturn. If COVID-19 causes borrowers to miss payments—which seems likely in light of the drastic reduction in economic activity—it would cause banks to incur losses and draw down their capital. If at the same time, individuals and businesses are withdrawing savings, it could strain bank liquidity. This is why capital and liquidity requirements are in place; so that banks have enough cushion that they are likely to survive such events. However, as the buffers are depleted and capital levels get closer to minimums, banks could respond by making fewer or no new loans because those new assets would increase the amount of capital the bank had to hold. This in turn would decrease the amount of credit available in the economy, potentially hastening, deepening, or causing a recession. Bank regulators have taken steps to reduce the likelihood that occurs. As part of a March 17 announcement, bank regulators released a statement encouraging banks to use their capital and liquidity buffers to support continued lending. On March 19, the agencies released a clarification on the buffer statement that included a Q&A document. These guidance documents remind banks that the purpose of the buffers is to ensure banks can keep lending during distressed times, note how much capital and liquidity are currently in the bank system, and encourage banks to continue lending prudently. Bank regulators also issued a rule change to how capital is measured to make it easier for banks to comply with capital rules that can place restrictions on a bank’s dividend payments and other capital distributions. Under this new rule, banks have an option to count more of their net income from the past year as “eligible retained earnings” that count toward meeting capital requirements. On March 23, the Federal Reserve announced the new definition would also be applied to the total loss-absorbing capacity rules that the largest U.S. banks and U.S. operations of foreign banks face. The rules require those banks to hold certain types and amounts of capital and debt. On March 24, the Federal Reserve announced that it would delay the upcoming implementation of a rule that would change the methodology used to determine how much liquidity the U.S. operations of foreign banking organizations have through temporary overdrafts on their Federal Reserve accounts, citing changing priorities stemming from the pandemic. The effective date was rescheduled from April 1 to October 1. In addition, the Federal Reserve has encouraged banks that need liquidity to borrow from its discount window. Recent actions taken by the Federal Reserve to provide liquidity to financial markets in response to COVID-19 are covered in CRS Insight IN11259, Federal Reserve: Recent Actions in Response to COVID-19, by Marc Labonte. On March 24, the Federal Reserve announced adjustments to its supervisory activities and priorities in response to the uncertainties created by COVID-19. Broadly, the Federal Reserve is shifting focus away from examination in favor of monitoring. It will cease all examinations of institutions with less than $100 billion, except in cases where there is “urgent need.” Certain examination activities will be deferred at institutions with more than $100 million. The Federal Reserve’s focus will instead shift to monitoring efforts to understand “the challenges and risks that the current environment presents.”

Mar 25, 2020

COVID-19: Industrial Mobilization and Defense Production Act (DPA) Implementation

On March 18, President Trump issued Executive Order 13909, Prioritizing and Allocating Health and Medical Resources to Respond to the Spread of COVID–19, which announced the President’s invocation of the Defense Production Act of 1950 (DPA) in response to the COVID-19 pandemic. The administration has yet to publicly provide direction to the private sector under this authority. This Insight considers possible future DPA implementation processes, industrial mobilization, and congressional considerations concerning the COVID-19 pandemic, and is a companion to CRS Insight IN11231. See CRS Report R43767 for a more in-depth discussion of DPA history and authorities. For additional related resources, see the CRS Coronavirus Disease 2019 homepage. Overview of DPA Powers in EO 13909 Executive Order 13909 (E.O. 13909), issued on March 18, 2020, in response to reported critical shortages of medical equipment and supplies, is organized into three sections: Section 1, Policy and Findings, announces the invocation of DPA authorities on the basis of the national security risk posed by the COVID-19 pandemic with the finding that current resources are insufficient to the task without the emergency authorities provided by the DPA. Section 2, Priorities and Allocation of Medical Resources, activates DPA Title I prioritization and allocation authorities, and provides for the Secretary of Health and Human Services (HHS), in consultation with the Secretary of Commerce and other executive agency heads, to exercise their use and issue additional guidelines and regulations as needed. Section 3, General Provisions, includes general provisions applicable to carrying out the executive order. The activation of DPA Title I prioritization and allocation authorities by E.O. 13909 represents the first time in the modern era that the DPA has been invoked and activated for the purposes of national industrial mobilization in response to a domestic threat (the COVID-19 pandemic). Executing DPA Authorities in E.O. 13909 The DPA provides the chief executive with various emergency powers that may be made available if invoked, but it is generally silent on the means by which those powers may be activated and implemented. E.O. 13909 expresses the President’s determination to invoke DPA emergency powers, and provides a general framework by which the relevant authorities may be activated and implemented. However, the executive order does not prescribe how those powers may be exercised, organized, or measured. Although the President may publicize his intentions with regard to DPA invocations in an executive order, he is not obligated to do so. For example, in July 2019, a Presidential Determination was issued in a memorandum to the Secretary of Defense invoking DPA Title III to expand productive capacity of rare earth metals. Although invoking DPA authorities makes those powers available to the President, they are not necessarily exercised except at the chief executive’s discretion. To this end, E.O. 13909 provides for the HHS Secretary to determine appropriate measures to making use of the prioritization and allocation authorities. The delegation of authority to the HHS Secretary is consistent with E.O. 13603, National Defense Resources Preparedness, in which HHS is delegated Title I authorities with respect to health resources. Implementation of DPA Title I authorities is governed by the Federal Priorities and Allocations System (FPAS), which is a body of five regulations that establishes standards and procedures for five executive agencies’ separate resource jurisdictions as delegated in E.O. 13603 (the Department of Defense, the sixth agency, only manages priority and allocations orders related to water resources). Accordingly, HHS Health Resources Priority and Allocations System (HRPAS) frames implementation of Title I authorities with respect to health resources. However, E.O. 13909 does not direct the immediate use of HRPAS, nor does it provide a process to inform its employment. Policy Considerations for Industrial Mobilization The decision to invoke, activate, and implement DPA authorities—and how that process occurs—is at the President’s discretion. Even after invoking and activating DPA authorities, the President may ultimately choose not to implement them, or to do so piecemeal. Although the DPA statute does provide certain congressional equities, the President may waive most of them, with the exception of the ability to set price and wage controls under Title I. However, Congress may enact laws, provide or deny funding, or provide guidance to signal intent, broaden oversight, and provide additional mechanisms for effecting a robust industrial response to the COVID-19 pandemic. To signal intent, Members may issue letters to the President and introduce resolutions calling for the activation and implementation of certain DPA authorities. Congress may also consider supplemental appropriations to the DPA Fund, an account generally used to support Title III activities, with directives that it be used for the implementation of specific DPA authorities and purposes during the COVID-19 pandemic response. Congress may advise, or otherwise encourage, the administration to make use of other DPA authorities, such as Title III, which provides financial incentives and other mechanisms to expand productive capacity; and Title VII, which provides for the establishment of industry coordination mechanisms and advisory bodies in carrying out other DPA activities. Congress may seek to broaden reporting requirements to include reporting by HHS (and other relevant executive agencies) with regard to the use of DPA authorities in response to the COVID-19 pandemic. Separately, Congress may expand congressional reporting requirements given to the Defense Production Act Committee (DPAC)—a multi-agency body that advises the President on the use of DPA authorities and issues an annual report to Congress—and/or the Office of the Deputy Assistant Secretary of Defense for Industrial Policy, which maintains a standing Title III program and issues an annual industrial capabilities report to Congress. Congress may seek to recreate wartime capabilities of emergency industrial mobilization within the executive branch. For example, the Office of Defense Mobilization was created in 1950 (E.O. 10193) under DPA authority and was tasked with implementing and coordinating industrial mobilization during the Korean War. Additionally, consistent with the President’s statements promoting state-level action, Congress may seek to appropriate block grants to states and other units of government to provide local industries with financial incentives to retool, retrofit, or expand productive capacity in response to the COVID-19 pandemic. This may be accomplished as an extension of DPA authorities or provided independently.

Mar 25, 2020

COVID-19 and Corporate Debt Market Stress

U.S. companies are carrying record levels of debt to finance their operations and growth (Figure 1). Corporate debt largely consists of bonds and, to a lesser extent, leveraged loans, bank loans, and other liabilities. The Securities and Exchange Commission (SEC) is the primary regulator overseeing the debt capital markets. In recent years, financial authorities have become increasingly vocal about the buildup of the higher-risk portions of the corporate debt market. This Insight explains the market’s composition and risks in the context of the current coronavirus (COVID-19)-induced capital markets stress. Figure 1. U.S. Nonfinancial Corporate Debt as Share of GDP / Source: HSBC, BIS total credit statistics. Notes: Shaded areas indicate U.S. recessions. BIS core debt consists of debt securities (bonds), loans, and currency and deposits. Corporate Bonds A company can issue and sell bonds to investors in exchange for cash. Investors of corporate bonds are functioning as lenders who generally receive the payments of principal plus interest over a period of time. The bonds themselves are financial instruments that can be bought or sold. The bond issuers’ borrowing costs and liquidity are largely determined by their credit ratings assigned by credit rating agencies. These ratings intend to indicate the issuers’ investment risks and payment capabilities. For example, a bond could receive either investment grade or high yield (also called speculative grade or junk bond) ratings—the higher the ratings the lower the borrowing costs (Figure 2). Figure 2. Corporate Bond Credit Ratings / Source: PIMCO. The Growth of BBB-Rated Bonds Financial regulators have shown particular concern over the growth of corporate bonds, especially the BBB bonds—referring to the lowest-quality investment-grade bonds in this Insight (Figure 3). BBB bonds made up around 50% of the investment-grade market as of 2019, compared to 17% in 2001. This has prompted the Fed to state that a widespread downgrade of BBB bonds during market stress could increase market illiquidity and downward price pressure, accelerating an economic downturn. Figure 3. Market Capitalization of U.S. Corporate Bonds by Credit Rating / Source: Evergreen Gavekal. BBB bonds draw concerns over “fallen angels” risk—the risk that further downgrades could push a BBB bond from being investment grade to high yield. This migration would adversely affect a company’s borrowing capacity and costs, thus increasing the likelihood that these already risky companies may default. Large-scale defaults might, in turn, lead to system-wide financial stability concerns. The long-term average rate by which “angels fall” is around 5% per year, with higher rates seen in business downturns (Figure 4). Figure 4. Percentage of BBB-Rated Issuers That Become Fallen Angels Within a Year / Source: OECD. Some also have concerns that large volumes of BBB downgrades may force bond sales that are hard for non-investment-grade investors to absorb. This is because investment-grade and high-yield bonds have different investor pools that convey different levels of investment capacity and liquidity. Many institutional investors are mandated to focus on investment-grade bonds, leaving the high-yield market to a narrower investor pool that may not be able to absorb large volumes of fallen angels. As such, there could be forced sales to further distort price and liquidity. The Growth of Leveraged Loans Financial authorities also expressed concerns about the rapid growth of leveraged loans, a type of corporate debt that is alleged to have high credit risk and low investor protection (Figure 5). The U.S. leveraged loan market has experienced higher growth relative to other developed economies, and the market has reached a size comparable to high-yield bonds (Figure 6). Figure 5. U.S. Leveraged Loan Risk Characteristics / Source: IMF. Note: For more details on the table, see page 32 of CRS Report R45957, Capital Markets: Asset Management and Related Policy Issues, by Eva Su. Figure 6. Leveraged Loans and High-Yield Bonds Outstanding in U.S. and E.U. / Source: Financial Stability Board. Coronavirus-Induced Market Stress Because a major portion of the corporate debt market is in higher -risk positions, the concern in recent years is that, during a market downturn, funding costs and availability could change, driving the already risky companies to defaults and business closures. Furthermore, the funding dislocation could drain out financial system liquidity and amplify financial and economic vulnerabilities. The coronavirus-induced market crash in March has put the corporate debt market to a real-world test. At the time of this writing, corporate debt market has already seized up (Figure 7). The investment-grade bond funds experienced the largest outflow on record. High-yield bonds and leveraged-loan prices have also “fallen off a cliff.” Members of Congress followed up on the issue to express concerns. As to the real economy, economic activities, especially those in the hardest hit segments (e.g., travel, retail, sports), have nearly come to a stop. Affected businesses have begun to have difficulty generating earnings. This could reduce their ability to repay corporate debt. Policymakers are seeking ways to avoid permanent damage to sound corporate borrowers who face a temporary period of low income during the coronavirus pandemic. Figure 7. Selloffs in the U.S. Investment-Grade Index: Worst Excess Return Months (%) March 2020 Versus Nine Other Months of Market Stress in Different Time Periods / Source: CreditSights, ICE BofAML Indices. The SEC has some existing tools to address market volatility—circuit breakers and limit up-limit down mechanisms. These cross-market temporary halts have been triggered multiple times in recent weeks, but the effects of such actions are debated. The Fed has also taken actions, including establishing a Primary Market Corporate Credit Facility and a Secondary Market Corporate Credit Facility to provide liquidity to investment-grade companies and their corporate bonds. Although such actions could help corporate issuers and investors, some have concerns that they may create moral hazard that could fuel excessive risk taking.

Mar 25, 2020

COVID-19: Legal Considerations for Bringing a New Vaccine to Market

Mar 24, 2020

COVID-19 and Direct Payments to Individuals: Estimated Impact of Recovery Rebates in the March 22 CARES Act on Family Incomes

A draft of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, circulated on Sunday, March 22, 2020, includes many provisions designed to stimulate the economy in response to the effects of the COVID-19 pandemic. One such provision of the March 22 draft is the “2020 recovery rebate,” a direct payment made to individuals. Similar “recovery rebates” were sent to individuals in response to the 2001 and 2008 recessions. Several Members of Congress have recently proposed varying forms of direct payment, and an earlier version of the CARES Act (introduced as S. 3548) includes a direct payment proposal. The direct payment proposed in the March 22 draft is structured similarly to the 2008 recovery rebates. The rebate takes the form of an advance refundable tax credit and would rely on the tax system to pay the credit to eligible individuals. As such, this Insight refers to eligible individuals as “taxpayers.” In general, taxpayers would be eligible for a rebate of $1,200 ($2,400 if the taxpayer is a married couple filing jointly). Taxpayers could increase the amount they receive by $500 for each child that they could claim for the child tax credit. The rebate amount would gradually phase out for higher-income taxpayers. The March 22 draft includes other provisions related to the timing of rebate payments, the information used to determine the rebate amount, and administrative challenges related to paying the rebate. How Much Would Family Incomes Increase Due to the March 22 CARES Act Proposed Direct Payment? Policymakers may consider the extent to which a direct payment could increase family income. To estimate the potential impact of the 2020 recovery rebates, CRS calculated the amount families would receive under the proposal in the March 22 CARES Act. CRS then compared the estimated rebate a family would receive to their estimated monthly income. Table 1 presents families’ median estimated monthly income and the median percentage of monthly income that families would receive as a rebate. These estimates are broken down by the ratio of family income to the poverty threshold to show the impacts of the 2020 rebate across the income distribution. Table 1 estimates that the median family living in poverty would receive a rebate that amounts to 182% of the amount of the family’s monthly income. The median refers to the midpoint of the distribution—50% of families in poverty would receive a rebate that is less than 182% of their estimated monthly income, and 50% of families in poverty would receive a rebate that is greater than 182%. The median family living near poverty (100%-199%) would receive a rebate equal to 92% of their estimated monthly income. Table 1. Estimated Median % of Monthly Income Families Would Receive as a 2020 Recovery Rebate Under the March 22 CARES Act Ratio of family income to poverty Median estimated monthly income (before rebate) Median percentage of estimated monthly income families would receive as a rebate Less than 100% (below poverty) $850 182% 100%-199% $2,100 92% 200%-299% $3,570 56% 300%-399% $4,930 41% 400%-499% $6,240 31% 500% or greater $10,440 4% Total $3,600 57% Source: CRS calculations via the TRIM3 microsimulation model using 2016 data. Notes: Median estimated monthly income rounded to the nearest 10. Estimated monthly income was calculated by dividing families’ annual income by 12. Income reported in this analysis reflects the Supplemental Poverty Measure (SPM) definition of income and includes a family’s after-tax wage income, self-employment income, the value of refundable tax credits, Social Security, Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), assisted housing benefits, childcare subsidies, and more. SPM poverty thresholds were used to calculate the ratios of family income to poverty. Policymakers may also consider the extent to which the phaseout provision of the recovery rebates would limit benefits received by higher-income families. The March 22 draft phases out the rebate paid to a taxpayer by 5% of the taxpayer’s adjusted gross income (AGI) that exceeds $75,000 ($112,500 for taxpayers filing as a head of household and $150,000 for married taxpayers filing jointly). Table 2 illustrates how the phaseout would affect rebate amounts for taxpayers in different parts of the income distribution. Specifically, taxpayers are categorized as (1) receiving a rebate that is not impacted by the phaseout, (2) receiving a rebate that is partially reduced by the phaseout, or (3) not receiving a rebate, as the rebate amount is fully reduced to $0. The estimates in Table 2 show that 82% of families would not be impacted by the phaseout and would receive the full rebate. Almost no families with incomes below 300% of poverty would have their rebate partially or fully reduced by the phaseout. Table 2. Estimated Phaseout Status of Families Eligible for a 2020 Recovery Rebate Under the March 22 CARES Act Ratio of family income to poverty Percentage of all families Family is not impacted by phaseout Family receives partial credit due to phaseout Family receives no credit due to phaseout Less than 100% (below poverty) 15% 100% 0% 0% 100%-199% 27% 100% 0% 0% 200%-299% 19% 98% 2% 0% 300%-399% 14% 87% 12% 1% 400%-499% 8% 65% 29% 6% 500% or greater 16% 24% 31% 46% Total 100% 82% 10% 8% Source: CRS calculations via the TRIM3 microsimulation model using 2016 data. Notes: Totals may not sum due to rounding. Supplemental Poverty Measure (SPM) poverty thresholds and the SPM definition of income were used to calculate the ratios of family income to poverty. Assumptions and limitations These estimates should be considered with a number of assumptions and limitations in mind, including the following: This analysis is based on the current tax code. It uses income data from 2016, the most recent year for which data are available for use in the TRIM3 model. This analysis estimates monthly income using an annual measure and does not reflect potential month-to-month fluctuations in family income. This analysis does not estimate decreases in income that families may experience as a result of COVID-19. This analysis assumes that every eligible family would receive exactly the recovery rebate amount to which it is entitled. This analysis does not account for taxpayers who are not required to file an income tax return—it assumes that all eligible taxpayers will file, despite differences in tax filing rates based on age and receipt of public assistance. The weighting used in Table 2 does not take family size into account. As a result, large families are underrepresented in the analysis presented in Table 2.

Mar 24, 2020

Withdrawals and Loans from Retirement Accounts for COVID-19 Expenses

Mar 24, 2020