CRS Reports

The Financial CHOICE Act in the 115th Congress: Selected Policy Issues

The Financial CHOICE Act (FCA; H.R. 10) was introduced on April 26, 2017, by Representative Jeb Hensarling, chairman of the House Committee on Financial Services. It was ordered to be reported by the House Committee on Financial Services on May 4, 2017. The bill, as amended, is a wide-ranging proposal with 12 titles that would alter many parts of the financial regulatory system. Much of the FCA is in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203), a broad package of regulatory reform following the financial crisis that initiated the largest change to the financial regulatory system since at least 1999. Many of the provisions of the FCA would modify or repeal provisions from the Dodd-Frank Act, although others would address long-standing or more recent issues. This report highlights major proposals included in the FCA but is not a comprehensive summary. In general, the bill proposes changes that can be divided into two categories: (1) changes to financial policies and regulations and (2) changes to the regulatory structure and rulemaking process. Major policy-related changes proposed by the FCA include the following: Leverage Ratio—allowing a banking organization to choose to be subject to a higher, 10% leverage ratio in exchange for being exempt from risk-weighted capital ratios, liquidity requirements, and other regulations. Regulatory Relief—providing regulatory relief throughout the financial system to banks, consumers, and capital market participants, including by repealing the Volcker Rule, Durbin Amendment, fiduciary rule, and risk retention requirements for nonmortgage asset-backed securities. Too Big To Fail—repealing the designation of systemically important nonbank financial institutions and emergency assistance and replacing an option for winding down systemic institutions with a new chapter in the Bankruptcy Code that is tailored to financial firms. Structural and procedural changes that affect the balance between regulator independence from and accountability to Congress and the judiciary include the following: Funding—subjecting regulators that currently set their own budgets to the traditional congressional appropriations process. Rulemaking—requiring regulators to perform more detailed cost-benefit analysis when issuing new rules and to use cost-benefit analysis to review existing rules, as well as requiring congressional approval for a major rule to come into effect. Judicial Review—requiring courts to apply a heightened judicial review standard for agency actions taken by financial regulators rather than applying varying levels of deference to the agencies’ interpretations of the law. Enforcement—increasing the maximum civil penalties that could be assessed for violations of certain banking and securities laws and restraining certain agency enforcement powers. CFPB—replacing the Consumer Financial Protection Bureau with the Consumer Law Enforcement Agency and modifying its powers, leadership, mandate, and funding.

May 10, 2017

H-2A and H-2B Temporary Worker Visas: Policy and Related Issues

Under current law, certain foreign workers, sometimes referred to as guest workers, may be admitted to the United States to perform temporary service or labor under two temporary worker visas: the H-2A visa for agricultural workers and the H-2B visa for nonagricultural workers. Both programs are administered by the Department of Homeland Security (DHS) and the Department of Labor (DOL). The H-2A and H-2B programs—and guest worker programs broadly—strive both to be responsive to legitimate employer needs for temporary labor and to provide adequate protections for U.S. and foreign temporary workers. There is much debate, however, about how to strike the appropriate balance between these goals. Bringing workers into the United States under either the H-2A or H-2B program is a multiagency process involving DOL, DHS, and the Department of State (DOS). As an initial step in the process, a prospective H-2A or H-2B employer must apply for DOL labor certification to ensure that U.S. workers are not available for the jobs in question and that the hiring of foreign workers will not adversely affect the wages and working conditions of U.S. workers. After receiving labor certification, the employer can submit an application, known as a petition, to DHS to bring in foreign workers. If the application is approved, a foreign worker who is abroad can then go to a U.S. embassy or consulate to apply for an H-2A or H-2B nonimmigrant visa from DOS. If the visa application is approved, the worker is issued a visa that he or she can use to apply for admission to the United States at a port of entry. Major guest worker reform legislation was last considered in the 113th Congress. Since then, guest worker bills typically have proposed to change particular aspects of the existing H-2A and H-2B visas. Legislative action in recent years has focused on the H-2B visa, specifically the statutory numerical limitation on the visa and H-2B regulatory provisions. Regarding the H-2B numerical limitation, the Consolidated Appropriations Act, 2016 (P.L. 114-113) provided that a returning H-2B worker who had been counted against the statutory cap in FY2013, FY2014, or FY2015 would not be counted again in FY2016. This provision expired at the end of FY2016. For FY2017, related language in the Consolidated Appropriations Act, 2017 (P.L. 115-31) provides for the issuance of H-2B visas beyond the statutory limit under certain conditions. Guest worker proposals may contain provisions on a range of component policy issues. Key policy considerations for Congress include the labor market test to determine whether U.S. workers are available for the positions, required wages, and enforcement. The issue of unauthorized workers also arises in connection with guest worker programs.

May 10, 2017

USDA Announces Plans to Modify School Meal Nutrition Standards: Background and Context

On May 1, Secretary of Agriculture Sonny Perdue announced that the U.S. Department of Agriculture (USDA) plans to make changes to nutrition standards for the National School Lunch Program and School Breakfast Program; he also signed a proclamation to this effect. The proclamation describes plans to relax whole grain, sodium, and milk requirements but does not mention changes to other aspects of the meals’ nutrition standards. The current standards were largely finalized via regulation in 2012 in accordance with the Healthy, Hunger-Free Kids Act of 2010 (P.L. 111-296) and were championed by then First Lady Michelle Obama. Although the Secretary’s proclamation itself does not amend the underlying regulations, it directs the agency to begin the rulemaking process. Aside from this rulemaking, for School Year 2017-2018 USDA will offer the whole grain, sodium, and milk flexibilities that were required by the FY2017 appropriations law (P.L. 115-31, enacted May 5, 2017). Nutrition Standards in School Meals Generally To receive reimbursements under the National School Lunch Program and School Breakfast Program, federal law requires that meals served in schools meet nutrition standards set by the USDA. The statutory requirement for USDA nutrition standards dates back to 1946. The USDA school meal nutrition standards regulations were last amended in January 2012, but the implementation of these standards has also been subject to policy provisions in annual appropriations acts. Final Rule (January 26, 2012) The 2010 reauthorization of the school meals programs (Healthy, Hunger-Free Kids Act of 2010 (P.L. 111-296)) set a timeframe for updating the old regulations (which had last been updated in 1995), but the exact meal pattern requirements (e.g., fat, calorie, sodium limits; required serving sizes) are generally enumerated in regulations, not statute. For the most part, the nutrition standards in the January 2012 final rule were based on the National Academies of Science, Engineering, and Medicine’s (NASEM) 2010 recommendations, the 2010 Dietary Guidelines for Americans (DGA), and FY2012 appropriations law. For example, the 2010 DGA recommended increasing intake of vegetables, fruits, whole grains, and fat-free and low-fat milk products. Consistent with these recommendations, the 2012 final rule’s major changes included the following: Weekly requirements for vegetable subgroups (e.g., dark green, red/orange). Increased amounts of fruits and vegetables served. Effective school year 2014-2015, all grains served must be whole grain-rich. Meals within a per-meal calorie range instead of only a calorie minimum. Zero grams (< 0.5 g) of trans fat per serving. Three tiers of progressively lower sodium limits: Target 1 by school year (SY) 2014-2015, Target 2 by SY2017-2018, Final Target by SY2022-2023. Milk served must be fat-free (flavored or unflavored) or 1% (only unflavored). As required by the 2010 law, USDA also provides an additional 6-cents-per-lunch reimbursement to schools complying with the updated standards. According to USDA Food and Nutrition Service (FNS) September 2016 data, nearly all school food authorities are certified to be in compliance with the nutrition standards; states have certification rates that range from 90 to 100%. Policy Provisions in Appropriations Law Following the publication of the 2012 final rule, Congress has addressed school and industry concerns with phased-in whole grain and sodium requirements through annual appropriation acts. Policy provisions in FY2015 appropriations law (P.L. 113-235) and FY2016 appropriations law (P.L. 114-113) (1) required USDA, through the states, to provide certain hardship-based waivers from the 100% whole grain-rich requirements for SY2014-2015, SY2015-2016, and SY2016-2017; and (2) prevented USDA from implementing sodium limits below Target 1. Section 747 of the FY2017 appropriations law contains related policy provisions; it extends the prior laws’ policy provisions and adds a new policy. It extends the whole grain exemptions through SY2017-2018, and (using different language from past years) limits enforcement of sodium limits to Target 1 levels. A new appropriations provision was added that requires USDA to allow states to grant special exemptions to serve flavored, low-fat milk. NOTE: In the 114th Congress, committee-reported bills to reauthorize the child nutrition programs would have required changes to nutrition standards. Committees of jurisdiction marked up bills, but the 114th Congress did not complete reauthorization. May 1, 2017, Proclamation Details The Secretary’s proclamation describes a commitment to change three aspects of school meals regulations: 1. Whole Grains. The Secretary directs USDA to begin revising regulations “to provide schools with additional options in regard to the serving of whole grains.” In the meantime, the Secretary says USDA will continue to provide states the authority to offer exemptions in SY2017-2018. 2. Sodium. The Secretary states that USDA will not require schools to meet sodium requirements lower than Target 1 through SY2019-2020 and will undertake regulatory actions to implement this change. 3. Milk. The Secretary directs USDA to begin the regulatory process to provide schools with the discretion to serve flavored 1% milk. The proclamation does not address other changes to the 2012 standards (e.g., calorie ranges, trans fat) but subsequent rulemaking could. Next Steps Once USDA has published proposed amendments to the nutrition standards regulations, as directed by the Secretary’s proclamation, Congress and school meals programs’ stakeholders may consider more specific policy implications and take advantage of the opportunity to comment on the proposed changes. In the meantime, parties can expect implementation of the policies in the current regulations and most recent appropriations law.

May 10, 2017

Benefits for Service-Disabled Veterans

The Department of Veterans Affairs (VA) administers programs to qualified former U.S. servicemembers (veterans). This report describes programs that provide benefits to veterans with service-connected disabilities (service-disabled veterans). These benefits can compensate a veteran for an injury or provide assistance to enable a veteran to have a higher quality of life. To qualify for the benefits discussed in this report, a veteran must have a physical or mental condition that was “incurred or aggravated” in the line of military duty and that results in a disability. Service-connected disabilities are rated on a scale from 0% to 100% using a VA rating schedule. Disability ratings are used to determine eligibility for various types of benefits and the amount of Veterans Disability Compensation benefits. This report describes major VA benefit programs that are limited to veterans with service-connected disabilities. Veterans Disability Compensation is a monthly cash payment to a veteran with a service-connected disability. Veterans with higher disability ratings are entitled to higher payments. Vocational Rehabilitation and Employment supports services for a veteran with an employment handicap to assist the veteran in obtaining and retaining suitable employment. Housing Grants and Benefits: Specially Adapted Housing Grants support the construction or acquisition of a new home or the remodeling of an existing home to help the veteran live independently in a barrier-free environment. Special Housing Adaptation Grants support modifications to a veteran’s home to accommodate a disability but support less-intensive modifications than Specially Adapted Housing Grants. Home Improvements and Structural Alterations Grants can be used to improve a veteran’s access to his or her home or to facilitate continuation of treatment for the veteran’s disability. Other Grants and Benefits: Automobile and Special Adaptive Equipment Grants can be used to purchase an automobile or to purchase adaptive equipment for an existing automobile to make it safe or legal for the veteran to use that vehicle. Clothing Allowance Grants are for veterans who utilize medical devices or medications that are likely to damage the veteran’s clothing. Service-Disabled Veterans Insurance is life insurance for service-disabled veterans. This report does not discuss health care services provided by the Veterans’ Health Administration and other benefits that are available to veterans who may or may not have service-connected disabilities.

May 8, 2017

Emerging Infectious Disease: Yellow Fever in Brazil

Introduction Yellow fever is a disease transmitted by mosquitoes endemic in 47 countries across sub-Saharan Africa and South America (see Figure 1). Roughly 90% of annual yellow fever cases typically occur in sub-Saharan Africa. An ongoing yellow fever outbreak in Brazil and the re-emergence of the disease across South America is the latest event highlighting the global threat of emerging infectious diseases (EID). All of the countries in South America that detected cases in 2016 (Bolivia, Brazil, Colombia, Ecuador, Peru, and Suriname) have contained the outbreaks except Brazil. As of May 4, 2017, Brazil has detected 729 cases and was investigating an additional 663 cases. Of the confirmed cases, 249 died and an additional 45 deaths were under investigation. EID are either new diseases or existing ones that emerge in new areas. New EID include Severe Acute Respiratory Syndrome (SARS) and HIV/AIDS. EID that have spread to new geographical areas include yellow fever and Zika. Notable EID outbreaks caused by zoonotic pathogens include SARS (2003), Avian Influenza H5N1 (2005), Pandemic Influenza H1N1 (2009), Middle East Respiratory Syndrome coronavirus (MERS-CoV, 2013), West Africa Ebola (2014), Zika (2015), and Yellow Fever (2016). Some observers assert the United States is vulnerable to yellow fever importation and are concerned about possible shortages of the vaccine. Importation of the disease into Brazil from Angola and the frequency at which the disease and other EID outbreaks are spreading globally have sparked further concern. Figure 1. Areas at Risk of Yellow Fever Transmission / Source: Adapted by CRS from CDC, accessed on January 27, 2017. Notes: Data for Latin America and sub-Saharan Africa were developed in March 2014 and July 2015, respectively. Yellow Fever in Brazil In Brazil, most human yellow fever cases are occurring in the southeastern part of the country, where most people had not been vaccinated since the region was not considered at risk of yellow fever (as indicated in blue in Figure 1). Most cases are in the states of Minas Gerais (484 confirmed cases and 224 cases under investigation) and Espirito Santo (212 confirmed cases and 306 cases under investigation, see Figure 2). The World Health Organization (WHO) recommends that at least 80% of a population be vaccinated to prevent outbreaks. By the end of 2015, roughly 46% of all Brazilians had been vaccinated, though almost all residents in areas “at risk” had been vaccinated. Brazil purchased roughly 24 million vaccine doses for the southeast region. As of the end of April 2017, about one-third of districts in the region had vaccinated at least 95% of their population. Figure 2. Yellow Fever Cases in Brazil / Source: Created by CRS from Brazil Ministry of Health, Monitoring Cases and Deaths of Yellow Fever in Brazil, Reports No. 5 and 39. Over 80% of yellow fever cases in Brazil are men, primarily of working age, who are vulnerable due to their work (such as mining) that may place them in contact with infected primates. Since the outbreak began through May 4, 2017, 3,660 primate deaths have been reported. Tests confirmed that 474 of the deaths were caused by yellow fever, 1,491 deaths are under investigation, and yellow fever was ruled out as the cause of 96 deaths. Reports are emerging of people attacking primates due to fears that they are spreading yellow fever. Scientists assert that primate survival is further threatened by deforestation, which shrinks the number of animals who may act as hosts for diseases and increases susceptibility to disease. Outlook On average, Congress provides some $130 million annually through State-Foreign Operations and Labor-HHS appropriations to the U.S. Agency for International Development (USAID) and the U.S. Centers for Disease Control and Prevention (CDC) to prevent and respond to global EID. Emergency responses to EID outbreaks have varied but tend to follow introduction of the disease into the United States. For example, the 114th Congress appropriated roughly $5 billion and $2 billion to help control the West Africa Ebola and Zika outbreaks, respectively, but other Congresses did not provide funds to address SARS or yellow fever outbreaks. Due to the unpredictable nature of EID outbreaks, some question whether Congress will continue to emphasize EID that reach U.S. shores or whether the 115th Congress might develop a different approach. The emergence of yellow fever in areas previously considered not at risk of yellow fever has deepened discussions about mosquito control, human vulnerability to EID, and global capacity to prevent and control large EID outbreaks. Mosquito control. Brazil is reportedly partnering with a private research company called Oxitec to use genetic modification to control mosquito populations. WHO recommended “carefully planned pilot deployment ... to build evidence for routine programmatic use.” Trials have been launched in countries across Latin America and South Asia, as well as in Florida. Despite the WHO endorsement, some health experts are concerned about the efficacy of Oxitec’s technology and assert that the release of modified mosquitos might “do more harm than good.” Human vulnerability. Brazil is working to prevent yellow fever from reaching dense, urban areas where most people remain unvaccinated and which are tourist destinations. WHO recommends that yellow fever vaccines be included among routine vaccinations in the 47 countries at risk of yellow fever transmission. Compliance has varied and is hampered by insufficient global production of the vaccine. Health experts warn that incapacity to control a yellow fever outbreak in one country threatens other countries whose populations are not vaccinated against the disease. Global EID control capacity. During the 2016 central African yellow fever outbreak, WHO employed a “fractional” dosing campaign because of vaccine shortages. Fractional doses protect against the disease for one year while standard doses provide lifetime protection in most cases. Brazil, typically a yellow fever vaccine donor country, is reportedly considering using this strategy and has received 3.5 million doses from WHO.The mass vaccination campaign to stop the central African yellow fever outbreak was the largest such effort in recent history, and trends indicate that other EID might require similar responses. Skeptics question, however, whether sufficient resources exist globally to handle simultaneous outbreaks of a similar magnitude.

May 5, 2017

Cost and Benefit Considerations in Clean Air Act Regulations

The Clean Air Act (CAA) gives the Environmental Protection Agency (EPA) broad authority to set ambient air quality standards to protect public health and welfare. It authorizes emission standards for both mobile and stationary air pollution sources, including cars, trucks, factories, power plants, fuels, consumer products, and dozens of other source categories. Since 1970, EPA has used this authority to require emission controls for these sources. Emissions of the most widespread (“criteria”) pollutants have been reduced by 72% during that period. As directed by Congress and by executive orders, EPA has estimated the costs and benefits of major CAA (and other) regulations for the last four decades. Its most comprehensive recent studies and studies by the Office of Management and Budget (OMB) have concluded that the benefits of clean air regulations outweigh the costs by substantial margins. EPA’s cost-benefit analyses of individual regulations, required by Executive Order 12866, show similar results: a review of the 55 economically significant CAA regulations promulgated from 2001 to 2016 found only two in which estimated costs exceeded benefits. Nevertheless, many in Congress have expressed concern that Clean Air Act and other environmental regulations harm the nation’s economy. One issue raised by critics is whether EPA underestimates the cost and other negative impacts of CAA rules—in part, by considering them individually, and not considering cumulative impacts. Another criticism is that the agency relies for most of its benefit assessments on the effects of reducing a single category of pollutants, particulate matter (PM). Research has tied PM to tens of thousands of premature deaths, and EPA often finds that reductions in PM emissions justify regulation, even where PM reductions are a “co-benefit” of reducing another targeted pollutant. A third issue critics raise is whether the methodology used to place monetary value on the avoidance of premature death—a technique referred to as calculating the “value of a statistical life”—inflates the estimated benefits of regulation. This report examines these issues in the context of Clean Air Act regulation. It reviews EPA and Office of Management and Budget (OMB) studies of the cost and benefit of CAA regulations, and addresses the issues raised by agency critics. The report finds that The Clean Air Act authorizes EPA to set standards in multiple sections of the act: about half of the act’s major regulatory authorities mention costs or economic considerations explicitly, and several others imply that costs may be considered; but other authorizing sections, including some key sections, make no mention of cost considerations. Where the statutory authorities do not mention cost consideration, they tend to fall into one of four categories: provisions in which Congress itself set the standards; provisions where Congress directed the agency to set health-based standards, without mentioning cost; broad authority to promulgate regulations to achieve an objective that Congress determined was necessary, but the specifics of which it could not anticipate; or authority to promulgate federal requirements in cases where states have failed to develop or implement adequate regulations on their own to meet a federal mandate. In all cases, even where the statute would prohibit consideration of cost in setting standards, EPA is bound by executive orders to provide estimates of costs and benefits if the rule would be economically significant. According to EPA, the estimated benefits of CAA regulation will exceed the estimated costs by more than 30 to 1 in the period 1990-2020. CAA regulations prevent 230,000 premature deaths annually, according to the agency. The estimated benefits of CAA regulations rely heavily on the effects of reducing particulate emissions, and on the value placed on the avoidance of premature death as a result of such controls. Many rules have benefits or costs that cannot be quantified or monetized in light of existing information. President Trump has issued two executive orders that address the cost of EPA regulations: Executive Order (E.O.) 13771, signed January 30, 2017, and E.O. 13783, signed March 28, 2017. The former directs OMB to set regulatory “budgets” for executive branch departments and agencies and, in general, to rescind two regulations for every new one issued. The latter requires EPA to review—and, if appropriate, suspend, revise, or rescind—several CAA regulations affecting energy production, with an eye to avoiding regulatory burdens. At present, the effect of the two orders on future CAA regulations is unclear. The report discusses some of the possible implications.

May 5, 2017

Paid Family Leave in the United States

Paid family leave (PFL) refers to partially or fully compensated time away from work for specific and generally significant family caregiving needs, such as the arrival of a new child or serious illness of a close family member. Although the Family and Medical Leave Act of 1993 (FMLA; P.L. 103-3) provides eligible workers with a federal entitlement to unpaid leave for a limited set of family caregiving needs, no federal law requires private-sector employers to provide paid leave of any kind. Currently, employees may access paid family leave if offered by an employer. In addition, workers in certain states may be eligible for state family leave insurance benefits that can provide some income support during periods of unpaid leave. As defined in state law and federal proposals, family caregiving activities that are eligible for PFL or family leave insurance generally include caring for and bonding with a newly arrived child and attending to serious medical needs of certain close family members. Some permit leave for other reasons, but in practice, day-to-day needs for leave to attend to family matters (e.g., a school conference or lapse in child care coverage), minor illness, and preventative care are not included among “family leave” categories. Employer provision of PFL in the private sector is voluntary. According to a national survey of employers conducted by the Bureau of Labor Statistics, 13% of private industry employees had access to PFL through their employers in March 2016. The availability of PFL was more prevalent among professional and technical occupations and industries, high-paying occupations, full-time workers, and workers in large companies (as measured by number of employees). Recent announcements by several large companies indicate that access may be increasing among certain groups of workers. In addition, some states have enacted legislation to create state paid family leave insurance (FLI) programs, which provide cash benefits to eligible workers who engage in certain caregiving activities. California, Rhode Island, and New Jersey currently operate FLI programs, which offer four to six weeks of benefits to eligible workers. The New York program will begin implementation in 2018. The District of Columbia Council voted to create a FLI program with benefits payable starting in 2020; the bill is currently under congressional review. Implementation of Washington State’s program is delayed until a financing mechanism is identified. Many advanced-economy countries entitle workers to some form of paid family leave. Whereas some provide leave to employees engaged in family caregiving (e.g., of parents, spouses, and other family members), many emphasize leave for new parents, mothers in particular. The United States is the only OECD member to not offer paid leave to new mothers. The 115th Congress is considering proposals to expand national access to paid family leave. Key bills include the Family and Medical Insurance Leave Act (FAMILY Act; S. 337/H.R. 947), which proposes to create a national wage insurance program for persons engaged in family caregiving activities or who take leave for their own serious health condition, and the Strong Families Act (S. 344), which would provide tax incentives to employers to voluntarily offer paid family and medical leave to employees.

May 4, 2017

Unemployment Insurance: Legislative Issues in the 115th Congress

The 115th Congress continues to consider many issues related to the two major components of the unemployment insurance (UI) system: Unemployment Compensation (UC) and Extended Benefits (EB). This report provides short summaries of legislative proposals with respect to UI programs. It also gives a brief overview of the UI programs that may provide benefits to eligible unemployed workers. President Trump signed H.J.Res. 42 on March 30, 2017 (P.L. 115-17). This Congressional Review Act (CRA) resolution negated 20 C.F.R. Part 620. This now-negated rule had set out the circumstances under which states were allowed to prospectively drug test UC claimants based upon the prevalence of drug testing in the occupations in which they were seeking employment. For information on the expired Emergency Unemployment Compensation 2008 (EUC08) program, which provided additional unemployment benefits from July 2008 to December 2013, see CRS Report R42444, Emergency Unemployment Compensation (EUC08): Status of Benefits Prior to Expiration. For a brief overview of UC, see CRS In Focus IF10336, The Fundamentals of Unemployment Compensation.

May 4, 2017

Frequently Asked Questions About Prescription Drug Pricing and Policy

Prescription drugs play an important role in the U.S. health care system. Innovative, breakthrough drugs are providing cures for diseases such as hepatitis C and helping individuals with chronic conditions lead fuller lives. Studies show that prescription drug therapy can produce health care savings by reducing the number of hospitalizations and other costly medical procedures. Congress has attempted to ensure that Americans have access to pharmaceuticals by enacting the Medicare Part D prescription drug benefit as part of the Medicare Modernization and Prescription Drug Act of 2003 (MMA; P.L. 108-173) and expanding drug coverage under the 2010 Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended). Congress also has enacted laws to encourage manufacturing of lower-cost generic drugs, as well as cutting-edge biologics and biosimilars. Americans are using more prescription drugs, and for longer periods of time, than in past decades. Still, access to prescription drugs remains a real issue for a number of consumers, particularly those without insurance; those prescribed expensive specialty drugs for treating serious or rare diseases; or those enrolled in private insurance or public health plans with high cost-sharing requirements, such as drug deductibles and coinsurance. Prescription drug affordability has gained renewed attention during the past few years as retail drug spending has risen at the fastest pace in more than a decade—growing 12.4% in 2014 and 9% in 2015 before slowing to an estimated 5% increase in 2016. There are several reasons for the increase in drug spending. Manufacturers have been introducing new drugs at a record rate, while raising prices for many existing brand-name products. At the same time, fewer brand-name drugs have lost patent protection than in previous years, paving the way for lower-cost generic substitutes. The Centers for Medicare & Medicaid Services (CMS) forecasts that retail drug spending could average 6.3% annual growth from 2016 to 2025. Although that growth rate would be a reduction from recent more rapid levels, CMS expects retail drug spending to increase faster than many other areas of medical spending in this 10-year period. This report will address frequently asked questions about government and private-sector policies that affect drug prices and availability. Among the prescription drug topics covered are federally funded research and development, regulation of direct-to-consumer advertising, legal restrictions on reimportation, and federal price negotiation. The report provides a broad overview of the issues as well as references to more in-depth CRS products. The appendixes provide references to relevant congressional hearings and documents (see Appendix A) and a directory of CRS prescription drug experts (see Appendix B).

May 2, 2017

Revitalizing Coastal Shipping for Domestic Commerce

In recent years, domestic shipborne commerce has lost much of its market to other modes. Although potential shipping routes run parallel to congested truck, railroad, and pipeline routes along the Atlantic and Pacific coasts and in the Great Lakes region, the volume of cargo carried by domestic ships has declined by 61% since 1960, while the volume carried by other modes, including river barges, has more than doubled. Use of domestic ships has retreated to routes where overland modes are not available, such as between Hawaii, Puerto Rico, and Alaska and the U.S. mainland, and where oil pipelines do not exist or are at capacity. One reason for the comparatively lower usage of domestic coastal and Great Lakes shipping is that despite their inherent efficiencies, ships are often not the lowest-cost option for domestic shippers. U.S.-built ships cost six to eight times more to build than the equivalent cargo capacity provided by rail and barge equipment. The comparatively high cost is related to the absence of foreign competition in shipbuilding and the lack of economies of scale at U.S. shipyards. U.S. container ports are widely considered to be much less efficient than ports in Europe and Asia, some of which are fully automated. A 2013 study examining the feasibility of coastal container services on the East Coast found that port handling costs were the largest cost element ship operators would face. Ship crewing costs are inflated by subsidies provided to U.S. crews aboard U.S. international trading ships that have government-impelled cargoes reserved for them. Domestic ship lines compete with the international fleet when hiring maritime officers. U.S. cargo shippers have responded to the comparatively high cost of domestic ship transport by turning to land modes, exporting goods instead of selling them domestically, and utilizing oceangoing barges instead of ships for coastal transport. Oceangoing barges cost less to construct, and can require only a third as many crew as coastal ships. Since 1960, coastwise and Great Lakes tonnage carried by barges has increased 356%, while ship tonnage carried on these waters has decreased by 61%. However, oceangoing barges have significant disadvantages: they are less efficient for longer voyages, and their use does not preserve the shipbuilding and maritime crewing capabilities Congress has sought to protect. Oceangoing barges mainly carry petroleum products, suggesting that commercial shippers do not find them attractive for other types of cargo. Reviving coastal shipping would dramatically increase the capacity of the nation’s freight network. Moreover, some of the necessary infrastructure is largely in place, as many of the harbors the federal government dredges for deep-draft vessels currently have little or no ship traffic. The question is whether a different mix of federal policies would make coastal trade an attractive option for shippers and ship owners. To revive coastal shipping, the cost issues would need to be addressed. Further information on the causes of the high cost of U.S.-built ships, the justification for the crewing disparity between oceangoing barges and coastal ships, and whether automation would lower cargo-handling costs at ports would be useful in evaluating policies that might revitalize coastal shipping.

May 2, 2017

The Financial CHOICE Act (H.R. 10) and the Dodd-Frank Act

Representative Jeb Hensarling, chairman of the House Committee on Financial Services, introduced the Financial CHOICE Act of 2017(H.R. 10) on April 26, 2017. The House Committee on Financial Services has scheduled a markup of H.R. 10 on May 2, 2017. The bill is a wide-ranging proposal with 12 titles that would alter many parts of the financial regulatory system. H.R. 10 is similar to, but has several major differences from, H.R. 5983 from the 114th Congress (called the Financial CHOICE Act of 2016). The next section highlights major proposals included in the bill, as introduced. It is not a comprehensive summary. Major Provisions In general, the changes proposed by the FCA can be divided into two categories: (1) changes to financial policies and regulations and (2) changes to the regulatory structure and rulemaking process. Major policy-related changes proposed by the FCA include the following: Leverage Ratio—allowing a banking organization to choose to be subject to a higher, 10% leverage ratio in exchange for being exempt from risk-weighted capital ratios, liquidity requirements, and other regulations. Regulatory Relief—providing regulatory relief throughout the financial system to banks, consumers, and capital market participants, including by repealing the Volcker Rule, Durbin Amendment, fiduciary rule, and risk retention requirements for non-mortgage asset-backed securities. Too Big To Fail—repealing the designation of systemically important financial institutions and the ability to provide federal emergency assistance during a crisis, and replacing an option for winding down systemic institutions with a new chapter in the Bankruptcy Code that is tailored to financial firms. H.R. 10 also includes structural and procedural changes that affect the balance between regulator independence from and accountability to Congress and the judiciary, including Funding—subjecting regulators that currently set their own budgets to the traditional congressional appropriations process. Rulemaking—requiring regulators to perform more detailed cost-benefit analysis when issuing new rules and to use cost-benefit analysis to review existing rules, as well as requiring congressional approval for a major rule to come into effect. Judicial Review—requiring courts to apply a heightened judicial review standard for agency actions taken by financial regulators rather than applying varying levels of deference to the agencies’ interpretations of the law. Enforcement—increasing the maximum civil penalties that could be assessed for violations of certain banking and securities laws and restraining certain agency enforcement powers. CFPB—replacing the Consumer Financial Protection Bureau with the Consumer Law Enforcement Agency and modifying its powers, leadership, mandate, and funding. Federal Reserve—requiring a GAO audit of the Fed, restricting emergency lending, and requiring the Fed to compare its monetary policy decisions to a mathematical rule. FCA Changes to the Dodd-Frank Act Much of H.R. 10 is in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P.L. 111-203), a broad package of regulatory reform that initiated the largest change to the financial regulatory system since at least 1999. Many of the provisions of the FCA would modify or repeal provisions from the Dodd-Frank Act, although others would address long-standing or more recent issues. Table 1 provides a brief overview of selected changes that H.R. 10 makes to the Dodd-Frank Act on a title-by-title basis for the 16 titles in the Dodd-Frank Act. For more information on the content of each Title of the Dodd-Frank Act, see CRS Report R41350, The Dodd-Frank Wall Street Reform and Consumer Protection Act: Background and Summary, coordinated by Baird Webel. Table 1. Selected Changes to the Dodd-Frank Act in the Financial CHOICE Act of 2017 Title Number Subject of Title Selected Changes I Financial Stability Repeals Office of Financial Research, SIFI designations; modifies FSOC authority, funding, procedures, and structure; exempts from enhanced regulation if 10% leverage ratio II Orderly Liquidation Authority Repeals entire title III Office of Thrift Supervision No changes IV Advisers to Hedge Funds Repeals changes to definition of accredited investor V Insurance Creates new office combining FSOC insurance expert and Federal Insurance Office VI Regulation of Depository Institutions Repeals Volcker Rule, non-bank concentration limits VII Derivatives Requires SEC-CFTC harmonization of rules; modifies requirements on swaps between affiliates VIII Payment, Clearing, and Settlement Supervision Repeals entire title IX Investor Protections Repeals SEC reserve fund, certain provisions affecting credit agencies, various executive compensation requirements. Exempts securities from risk retention rules that are not residential mortgages X Bureau of Consumer Financial Protection Modifies CFPB authority, structure, and funding. Repeals Durbin Amendment XI Federal Reserve Repeals FDIC authority to provide emergency guarantees, narrows Fed’s emergency lending authority XII Access to Mainstream Financial Institutions No changes XIII TARP funding No changes XIV Mortgage Reform Modifies mortgage rules, including manufactured housing, points and fees, and portfolio lending XV Miscellaneous Provisions Repeals provisions on conflict minerals, mine safety, and resource extraction disclosure XVI Section 1256 Contracts No Changes Source: Created by CRS.

May 1, 2017

Dispute Settlement in the WTO and U.S. Trade Agreements

May 1, 2017

Patent Boxes: A Primer

Economists generally agree that government support for private investment in research and development (R&D) is useful in correcting a market failure that predisposes most companies to invest less for that purpose than the overall economic benefits from R&D investments would warrant. The market failure stems from a company’s inability to capture all the returns to its R&D investments as a result of the spillover effects of successful R&D investments. Most governments offer some kind of support for R&D, including tax incentives for business R&D investments. The U.S. government provides a tax credit for qualified research under Section 41 of the federal tax code and a full expensing allowance for qualified research expenditures under Section 174, but no patent box. As part of the debate in Congress over reforming the federal income tax, some have expressed support for the adoption of a patent box. Such a box is a tax subsidy that applies to the returns to successful R&D investments. In effect, a patent box partially compensates companies for the returns that spill over to other actors, such as competing companies. Countries typically adopt patent boxes with three key goals in mind: (1) increasing tax revenue by encouraging the repatriation of intellectual property (IP) held abroad and discouraging domestic companies from transferring IP to foreign subsidiaries in low-tax countries; (2) expanding domestic innovative activities; and (3) stimulating growth in domestic high-paying jobs. Every patent box now in use is built around two key elements: the nature of the tax subsidy it offers and the scope of its application. The tax subsidy typically comes in two forms: a deduction or exemption from a company’s gross income or a separate, preferential tax rate for qualified intellectual property (IP) income. A patent box’s scope addresses such issues as the kinds of IP and IP-related income that qualify for the tax subsidy. At the end of 2015, 16 countries offered a patent box; all but three of them were members of the Organization of Economic Cooperation and Development. Among the nine largest patent-box countries as a location for business R&D investment, effective patent-box tax rates ranged from 5.0% to 17.1%. Each patent box applied to existing and new patented innovations. Only one of the nine countries did not offer separate tax incentives for domestic R&D investment. It stands to reason that the industries most likely to benefit from patent boxes are those that use patents intensively. According to a 2016 report by the U.S. Patent and Trademark Office and the U. S. Department of Commerce, two industries are the most intensive users of patents, as measured by the number of patents granted to them per 1,000 full-time employees: chemical manufacturing (including pharmaceuticals) and computer and electronic equipment. The prospect of the United States adopting a patent box raises several policy issues. One issue concerns the effectiveness of patent boxes in achieving their goals. The empirical literature on patent boxes is relatively meager, since most existing patent boxes have come into use since 2007. Nonetheless, a handful of academic studies have looked at the actual or probable effects of patent boxes on several indicators of success. They found that patent registration was responsive to cuts in tax rates on the income from patents; there is no evidence that patent boxes increase host-country revenues; and patent boxes have done little to boost investment in innovation in host countries. Patent boxes also raise questions about the cost to companies of complying with the rules and the cost to tax authorities of issuing regulations and enforcing them; whether a patent box is warranted on economic grounds; and their incentive effect, especially when coupled with R&D tax incentives.

May 1, 2017

Advanced Gene Editing: CRISPR-Cas9

Scientists have long sought the ability to control and modify DNA—the code of life. A new gene editing technology known as CRISPR-Cas9 offers the potential for substantial improvement over previous technologies in that it is simple to use and inexpensive and has a relatively high degree of precision and efficiency. These characteristics have led many in the scientific and business communities to assert that CRISPR-Cas9 will lead to groundbreaking advances in many fields, including agriculture, energy, ecosystem conservation, and the investigation, prevention, and treatment of diseases. Over the next 5 to 10 years, the National Academy of Sciences projects a rapid increase in the scale, scope, complexity, and development rate of biotechnology products, many enabled by CRISPR-Cas9. Concomitant with the promise of potential benefits, such advances may pose new risks and raise ethical concerns. For example, recent experiments by Chinese scientists and others that modified human embryos using CRISPR-Cas9 gene editing have sparked ethical debates, raising such concerns as how the genetic change would affect not only the immediate patient, but also future generations who would inherit the change without choice. Additionally, CRISPR-related approaches (i.e., gene drives) are being considered to reduce or eliminate the mosquito that serves as the primary vector for the transmission of Zika or malaria, thereby improving public health. Some scientists have raised ethical questions and expressed concerns about the unintended ecological consequences of eliminating a species or introducing a genetically modified organism into an open environment. Some experts assert that the current system for regulating biotechnology products—the Coordinated Framework for the Regulation of Biotechnology—may be inadequate, with the potential to leave gaps in oversight. Regulatory gaps may lead to increased uncertainty that could affect the development of future biotechnology products or a loss of public confidence in the ability of regulators to ensure that such products are safe. In the 115th Congress, policymakers may want to examine the potential benefits and risks associated with the use of CRISPR-Cas9 gene editing, including the ethical, social, and legal implications of CRISPR-related biotechnology products. Congress also may have a role to play with respect to regulation, research and development, and economic competitiveness associated with CRISPR-Cas9 gene editing and future biotechnology products.

Apr 28, 2017

Infectious Disease Outbreaks: Yellow Fever in South America

Apr 27, 2017

Infectious Diseases Outbreaks: Yellow Fever in Central Africa

Apr 27, 2017

Law Enforcement Using and Disclosing Technology Vulnerabilities

There has been increased discussion about law enforcement legally “hacking” and accessing certain information about or on devices or servers. Law enforcement has explored various avenues to discover and exploit vulnerabilities in technology so it may attempt to uncover information relevant to a case that might otherwise be inaccessible. For instance, as people have adopted tools to conceal their physical locations and anonymize their online activities, law enforcement reports that it has become more difficult to locate bad actors and attribute certain malicious activity to specific persons. As a result, officials have debated the best means to obtain information that may be beneficial to the administration of justice. Exploiting vulnerabilities is one such tool. Law enforcement’s use of tools that take advantage of technology vulnerabilities has evolved over the years. The first reported instances of law enforcement hacking involved authorities using keylogging programs to obtain encryption keys and subsequent access to devices. More recently, law enforcement has been relying on specially designed exploits, or network investigative techniques (NITs), to bypass anonymity protections of certain software. In addition, investigators have leveraged vulnerabilities discovered in software designed to encrypt or otherwise secure data and limit access to information. In exploiting vulnerabilities, law enforcement may leverage previously known vulnerabilities that have not yet been patched. Alternatively, it may develop tools to detect and take advantage of previously unknown and undisclosed vulnerabilities. It is law enforcement’s use and disclosure of these previously unknown vulnerabilities that has become the subject of some debate. The Obama Administration established a process, known as the Vulnerabilities Equities Process (VEP), to help decide whether or not to disclose information about newly discovered vulnerabilities. The VEP is triggered whenever a federal government entity, including law enforcement, discovers or obtains a new hardware or software vulnerability. The discussion on whether the government, and law enforcement, should generally retain or disclose discovered vulnerabilities lacks a number of data points that may help inform the conversation. For example, in what number or proportion of cases does law enforcement leverage technology vulnerabilities to obtain evidence? Are there tools other than vulnerability exploits or NITs that law enforcement can use to obtain the same evidence, and how often are those tools utilized? Congress may examine a range of policy issues related to law enforcement using and disclosing vulnerabilities. For example, how does law enforcement’s ability to lawfully hack, or exploit vulnerabilities, influence the current debate surrounding whether law enforcement is “going dark,” or being outpaced by technology? In addition, how does law enforcement acquire the knowledge of vulnerabilities and associated exploits? Might law enforcement consider establishing its own (or supporting others’) reward programs in order to gain knowledge of vulnerabilities or exploits? Given the current VEP framework, is it the most effective method for law enforcement to use in determining whether to share vulnerability information with the technology industry, and how might law enforcement share such information with their multilateral law enforcement partners?

Apr 26, 2017

The Earned Income Tax Credit (EITC): A Brief Legislative History

The earned income tax credit (EITC), when first enacted on a temporary basis in 1975, was a modest tax credit that provided financial assistance to low-income, working families with children. After various legislative changes over the past 40 years, the credit is now one of the federal government’s largest antipoverty programs. Since the EITC’s enactment, Congress has shown increasing interest in using refundable tax credits for a variety of purposes, from reducing the tax burdens of families with children (the child tax credit), to helping families afford higher education (the American opportunity tax credit), to subsidizing health insurance premiums (the premium assistance tax credit). The legislative history of the EITC may provide context to current and future debates about these refundable tax credits. The origins of the EITC can be found in the debate in the late 1960s and 1970s over how to reform welfare—known at the time as Aid to Families with Dependent Children (AFDC). During this time, there was increasing concern over growing welfare rolls. Senator Russell Long proposed a “work bonus” plan that would supplement the wages of poor workers. The intent of the plan was to encourage the working poor to enter the labor force and thus reduce the number of families needing AFDC. This “work bonus” plan, renamed the earned income tax credit, was enacted on a temporary basis as part of the Tax Reduction Act of 1975 (P.L. 94-12). As originally enacted, the credit was equal to 10% of the first $4,000 in earnings. Hence, the maximum credit amount was $400. The credit phased out between incomes of $4,000 and $8,000. The credit was also viewed as a means to encourage economic growth in the face of the 1974 recession and rising food and energy prices. Over the subsequent 40 years, numerous legislative changes have been made to this credit. Some changes increased the amount of the credit by changing the credit formula. Major laws that increased the amount of the credit include the following: P.L. 101-508, which adjusted the credit amount for family size and created a credit for workers with no qualifying children; P.L. 103-66, which increased the maximum credit for tax filers with children and created a new credit formula for certain low-income, childless tax filers; P.L. 107-16, which increased the income level at which the credit phased out for married tax filers in comparison to unmarried tax filers (referred to as “marriage penalty relief”); and P.L. 111-5, which increased the credit amount for families with three or more children and expanded the marriage penalty relief enacted as part of P.L. 107-16. Other legislative changes changed the eligibility rules for the credit. Major laws that changed the eligibility rules of the credit include the following: P.L. 103-66, which expanded the definition of an eligible EITC claimant to include certain individuals who had no qualifying children; P.L. 104-193, which required tax filers to provide valid Social Security numbers (SSNs) for work purposes for themselves, spouses if married filing jointly, and any qualifying children, in order to be eligible for the credit; and P.L. 105-34, which introduced additional compliance rules to reduce improper claims of the credit. Together, these changes reflect congressional intent to expand this benefit while also better targeting it to certain recipients.

Apr 26, 2017

The Current State of Federal Information Technology Acquisition Reform and Management

The Government Accountability Office (GAO) has reported that the federal government budgets more than $80 billion each year on information technology (IT) investments and in FY2017, GAO estimates that this investment will increase to more than $89 billion. Historically, the projects supported by these investments have often incurred “multi-million dollar cost overruns and years-long schedule delays.” In addition, GAO has reported that these projects may contribute little to mission-related outcomes and, in some cases, may fail altogether. These undesirable results, according to GAO, “can be traced to a lack of disciplined and effective management and inadequate executive-level oversight.” The Federal Information Technology Acquisition Reform Act (FITARA) was enacted on December 19, 2014, to establish a long-term framework through which federal IT investments could be tracked, assessed, and managed, to significantly reduce wasteful spending and improve project outcomes. These requirements of FITARA are carried out by the Federal Chief Information Officer (CIO). The position of the Federal CIO was created by the E-Government Act of 2002 as the “Administrator, Office of Electronic Government.” Congress and GAO have actively monitored the activities of the Federal CIO and the initiatives carried out by the office. Both have been especially attentive to the topics of data center use and cloud deployment as they relate to achieving the goals of FITARA. The Director of the Office of Management and Budget published guidance in June 2015 to assist federal agencies in the implementation of the law. The 114th Congress held seven hearings related to Federal CIO initiatives, and GAO has conducted numerous investigations into Federal CIO initiatives and published 14 reports and testimonies on CIO-related topics since 2012.

Apr 25, 2017

Farm Bill Primer: Trade and Export Promotion Programs

Apr 25, 2017

The “Better Way” House Tax Plan: An Economic Analysis

On June 24, 2016, House Speaker Paul Ryan released the Better Way Tax Reform Task Force Blueprint, which provides a revision of federal income taxes. For the individual income tax, the plan would broaden the base, lower the rates (with a top rate of 33%), and alter some of the elements related to family size and structure by eliminating personal exemptions, allowing a larger standard deduction, and adding a dependent credit. For business income, the current income tax would be replaced by a cash-flow tax rebated on exports and imposed on imports, with a top rate of 20% for corporations and 25% for individuals. The cash-flow tax would be border-adjusted (imports taxed and exports excluded), making domestic consumption the tax base. The system would also move to a territorial tax in which foreign source income (except for easily abused income) would not be taxed. In addition, the proposal would repeal estate and gift taxes. Although the Affordable Care Act (ACA) taxes are not repealed in the Better Way tax reform proposal, ACA taxes are repealed in the Healthcare Task Force proposals. One objective of tax reform is to increase output and efficiency. However, the plan’s estimated output effects appear to be limited in size and possibly negative. The direct effect of lower marginal tax rates on labor supply is limited because the reduction in marginal tax rates is small and largely offset by an increased base that increases effective marginal rates. Capital income effects are also somewhat limited even with the movement to a cash-flow tax (that generally imposes a zero rate) because the current effective tax rate is low, due to current accelerated depreciation and the negative tax rate on debt financed investment. Growth effects are also limited because most empirical evidence does not support large savings and labor supply responses. As currently proposed, the plan loses significant revenue which, according to some estimates, could more than offset the supply responses and eventually lead to a contraction in output. The plan would achieve efficiency gains, particularly in the allocation of capital by type and industry and in the even treatment of debt and equity finance. It would eliminate many distortions associated with multinational firms, including eliminating the tax treatment that discourages repatriation of foreign source income to the United States and the incentive for firms to invert (shift headquarters abroad) by merging. Although claims have been made that the border adjustment would penalize imports and favor exports, a true border-adjusted tax has no effect on imports and exports due to the dollar’s appreciation. There may be transitory effects, and for the blueprint, the export exemption may not be received by all exporters, which could cause the plan to act in part as a tariff. There are, however, a number of methods that might be used to obtain the benefits of the export exemption. Studies of the distributional effects indicate that the plan increases the after-tax income of higher-income individuals compared with lower-income individuals. The plan’s treatment of families of different compositions remains similar to current law, with families with children favored at low incomes and disfavored at high incomes. The plan would simplify the tax system’s administration and compliance by reducing the number of itemizers, eliminating the estate tax, simplifying depreciation, and eliminating the need for most international tax planning to shift profits out of the United States. However, some new complications would be introduced, including separating favored capital income of pass-through businesses from labor income of their owner-operators and implementing border-tax adjustments. Other concerns about the tax reform are that the border adjustment will be found illegal by the World Trade Organization and violate bilateral tax treaties. Major changes in business taxes may also complicate the tax administration of state and local governments.

Apr 25, 2017

Cuba: U.S. Policy in the 115th Congress

Cuba remains a one-party authoritarian state with a poor record on human rights. Current President Raúl Castro succeeded his long-ruling brother Fidel Castro in 2006, and the succession was characterized by a remarkable degree of stability. Raúl began his second and final five-year term as president in 2013, which is scheduled to end in February 2018, when he would be 86 years of age. Most observers see First Vice President Miguel Diaz-Canel as the “heir apparent” as president, although Raúl likely will continue in his position as first secretary of Cuba’s Communist Party (PCC). Under Raúl, Cuba has implemented gradual market-oriented economic policy changes over the past decade, but critics maintain that the government has not taken enough action to foster sustainable economic growth. Few observers expect the government to ease its tight control over the political system, especially as the country approaches its political succession in 2018. Although the government has released numerous political prisoners in recent years, it still holds an estimated 75-95 political prisoners. Moreover, short-term detentions and harassment against democracy and human rights activists have increased over the past several years. U.S. Policy Congress has played an active role in shaping policy toward Cuba, including the enactment of legislation strengthening and at times easing various U.S. economic sanctions. Since the early 1960s, when the United States first imposed a trade embargo on Cuba, the centerpiece of U.S. policy has consisted of economic sanctions aimed at isolating the Cuban government. In December 2014, however, the Obama Administration initiated a major Cuba policy shift, moving away from sanctions toward a policy of engagement and a normalization of relations. The policy change included the restoration of diplomatic relations (July 2015), the rescission of Cuba’s designation as a state sponsor of international terrorism (May 2015), and an increase in travel, commerce, and the flow of information to Cuba. To implement this third step, the Treasury and Commerce Departments eased the embargo regulations five times (most recently in October 2016) in such areas as travel, remittances, trade, telecommunications, and financial services. The overall embargo, however, remains in place, and can be lifted only with congressional action or if the President determines and certifies to Congress that certain conditions in Cuba are met, including that a democratically elected government is in place. The outlook for U.S. policy toward Cuba under the Trump Administration is uncertain. According to U.S. officials, the Administration is conducting a full review of U.S. policy toward Cuba, with human rights at the forefront of those discussions. Statements by President Trump before his inauguration suggest that he could reverse some of the policy changes taken by the Obama Administration to normalize relations. Legislative Activity There are contrasting congressional views on the appropriate U.S. policy approach toward Cuba. Numerous legislative initiatives and provisions in appropriations bills in the 114th Congress would have further eased or lifted the embargo, whereas other initiatives would have blocked efforts toward normalization. Ultimately, none of these initiatives were enacted. In the 115th Congress, debate over Cuba policy likely will continue, especially with regard to U.S. economic sanctions. To date, several bills have been introduced to ease or lift economic sanctions altogether: H.R. 351 (travel), H.R. 442/S. 472 (some economic sanctions), H.R. 498 (telecommunications), H.R. 525 (agricultural exports and investment), H.R. 572 (agricultural and medical exports and travel), H.R. 574 (overall embargo), and S. 275 (private financing for U.S. agricultural exports). For more on these and other bills, see Appendix A.

Apr 21, 2017

Ecuador’s 2017 Elections

Apr 20, 2017

New Canadian Dairy Pricing Regime Proves Disruptive for U.S. Milk Producers

A new pricing regime—the National Ingredient Strategy—that was introduced in Canada in February 2017 for certain dairy product ingredients is creating negative spillover effects for some U.S. dairy product exports and for certain milk producers in border states whose milk deliveries to processors are dependent upon this trade. Press reports indicate that some 75 dairy farms in Wisconsin have been advised that their milk delivery contracts with a local milk processor will not be renewed as of May 1, 2017, because of the new pricing regime in Canada. Some dairy farmers in Minnesota have been similarly affected, while processors in New York State that produce ultra-filtered (UF) milk for the Canadian market also stand to be affected. Canadian milk producers operate under a supply management system that supports prices of milk—and by extension milk products—at levels well above U.S. prices and prices that prevail in international trade. Under the National Ingredient Strategy, certain Canadian milk product ingredients are to be priced by provincial milk marketing boards at or below internationally competitive levels, potentially curtailing U.S. exports of such products, particularly UF milk to Canada. $100 Million Export Market at Risk UF milk is a high-protein liquid product that results from separating and concentrating certain milk proteins for use in the production of dairy products, such as cheese and yogurt. U.S. UF milk found a market among Canadian cheese makers after Canada revised its compositional standards for cheese in 2008, significantly reducing the use of several milk products that U.S. processors had been supplying to Canadian food manufacturers, although UF milk usage was not limited under the revised standards. Also, U.S. UF milk is not subject to import quotas or high duties that Canada imposes on most dairy product imports. As such, U.S. sales of UF milk to Canadian processors have expanded rapidly in recent years. According to the U.S. Census Bureau, Canada ranked as the largest U.S. export market for UF milk in 2016, with sales of about $102 million. In 2016, total U.S. dairy exports to Canada amounted to $733 million and totaled $5 billion to the world. Canada’s supply management system for its dairy sector supports milk prices at high levels relative to world market prices through quotas on domestic production together with high tariff levels and tariff-rate quotas that restrict imports of dairy products. It has long been a source of concern for the U.S. dairy industry. In addition, U.S. dairy interests are now concerned about an ingredient pricing strategy the Canadian dairy industry is pursuing, a strategy the U.S. industry contends is aimed at further discouraging imports of certain U.S. milk product exports to Canada, including UF milk. An additional concern is that the pricing strategy will facilitate exports of surplus Canadian skim milk products that would not otherwise be price competitive in international markets, potentially displacing similar U.S. product exports. In recent years, increased demand for butterfat from milk has led to an increase in milk production quotas in Canada, resulting in a surplus of skim milk supplies. To address the surplus of high-priced skim milk powder, in 2016 the province of Ontario adopted a special pricing program (Class 6) that allowed for the sale of various domestic dairy ingredients at international market prices rather than the typically higher prices that otherwise prevailed under Canada’s supply management system. A broadly similar approach to pricing milk protein products was introduced on a temporary basis across Canada last year. In February 2017, this pricing strategy, known as Class 7, was implemented by provincial dairy marketing boards on a longer-term basis with the expectation that the program will operate nationwide. Class 7 milk is comprised of skim milk components, including milk protein concentrates, skim milk and whole milk powders, edible casein, rennet casein, and various powders derived from milk products. Despite the U.S. government’s request, specific details governing the program, including how prices for these commodities are to be determined, have not yet been made public. Such information would be important for determining whether this pricing strategy violates Canada’s trade commitments, as the U.S. dairy industry and its counterparts in other major dairy exporting countries have asserted. U.S. Dairy Industry Sees Trade Agreement Violations U.S. dairy interests contend that this program is designed to favor Canadian milk products at the expense of imports, including U.S. milk product exports such as UF milk. U.S. dairy participants also assert that the Class 7 initiative will facilitate dumping of Canadian skim milk ingredients on world markets. In a letter of September 12, 2016, to government trade officials, major U.S. dairy market stakeholders—together with their counterparts in several dairy-exporting competitor countries—contended that the Canadian dairy industry’s ingredients pricing program that was agreed to in principle (the basis for Class 7) violates Canada’s commitments under the North American Free Trade Agreement (NAFTA), the World Trade Organization, and the EU-Canada Comprehensive Economic and Trade Agreement. In a letter dated April 18, 2017, Canada’s ambassador to the United States rejected assertions that Canada’s dairy policies are causing financial loss for U.S. dairy farmers and that they violate Canada’s international trade obligations, asserting that the U.S. dairy industry is more protectionist than is Canada’s. The ambassador further points out that the National Ingredient Strategy is an industry initiative representing an agreement among Canada’s dairy producers and processors. Separately, Canadian dairy industry officials contend that the dilemma facing U.S. farmers whose supply contracts are not being extended reflects excess U.S. milk production, not Canada’s dairy pricing policies. In a letter of April 13, 2017, U.S. dairy industry groups requested that President Trump intervene directly with Canadian Prime Minister Justin Trudeau to halt the Class 7 program. In addition, several Members of Congress from Minnesota have asked President Trump to explore whether Class 7 pricing violates Canada’s WTO obligations. In a recent speech, President Trump vowed to “stand up” for Wisconsin dairy farmers. Renegotiating NAFTA, as President Trump has advocated, could provide a construct for addressing Canada’s dairy pricing ingredient strategy.

Apr 20, 2017

Westinghouse Bankruptcy Filing Could Put New U.S. Nuclear Projects at Risk

Westinghouse Electric Company, a major nuclear technology firm that supplied nearly half of the 99 currently operating U.S. commercial reactors, filed for bankruptcy reorganization on March 29, 2017. The bankruptcy filing raised fundamental questions about the future of the U.S. nuclear power industry, and particularly whether four new reactors that Westinghouse is constructing for electric utilities in Georgia and South Carolina will be completed. The four reactors are the first to begin construction in the United States since the mid-1970s, and the nuclear industry had hoped they would pave the way for many more. Because the Georgia two-reactor project, whose lead owner is Georgia Power, received $8.3 billion in loan guarantees from the Department of Energy (DOE), concerns have also been raised about potential federal liability should the borrowers default. The South Carolina project, with lead owner South Carolina Electric and Gas (SCE&G), did not receive DOE loan guarantees. The Japanese industrial conglomerate Toshiba Corporation bought the majority of Westinghouse in 2006. In 2008, Westinghouse signed fixed-price contracts to build two 1,150 megawatt AP1000 reactors at the Vogtle nuclear plant in Georgia and two more at the V.C. Summer plant in South Carolina. The fixed-price nature of the contracts meant that Westinghouse and Toshiba were to bear most of the risk for schedule delays and cost overruns. The four reactors were originally scheduled to be completed by 2016-2018 at a cost (excluding interest) of about $4.8 billion per unit at Vogtle, according to Georgia Power’s most recent progress report, and $5.7 billion for each of the new Summer units, according to a recent SCE&G regulatory filing. (Cost estimates by the two states differ in scope and methodology.) Schedule delays and rising costs occurred at both plants soon after major construction began. Resulting lawsuits were settled at the end of 2015 with the utilities agreeing to pay for some of the rising costs but with Westinghouse and Toshiba agreeing to pay for any future delays and cost overruns. Toshiba announced February 14, 2017, that the cost estimates for completing the four units had risen another $6.1 billion since the 2015 settlements. Westinghouse filed for bankruptcy six weeks later. In a statement released with the bankruptcy filing, Toshiba said total debt accrued to Westinghouse and related companies was $9.8 billion, including the nuclear cost overruns. Continuation of Georgia and South Carolina Reactors Westinghouse is continuing to operate during its Chapter 11 bankruptcy reorganization with $800 million in financing. In a statement on the bankruptcy, Westinghouse said it would continue building the Vogtle and Summer nuclear units “during an initial assessment period,” reported to be through April 28, 2017. Whether construction will continue beyond that date depends on decisions by the project owners, state regulators, and possibly the federal government. The two new Summer reactors were 60.9% complete at the end of 2016, according to SCE&G’s most recent quarterly status report. This includes the completion of 94.9% of engineering work, 84.6% of procurement, and 30.9% of construction. Completion percentages are not included in Georgia Power’s latest status report for the Vogtle project, but it has generally been proceeding in parallel with Summer. Current projected completion dates for the four units at both sites range from 2019 to 2020. The possibility that Westinghouse will have to be replaced as the construction contractor is one of the largest issues facing the Summer and Vogtle projects. Westinghouse’s bankruptcy statement said the company would continue its “core businesses,” which notably exclude new reactor construction. If the Summer and Vogtle projects were to continue without Westinghouse as construction manager (although the AP1000 design would still be used), the utilities that purchased the plants would have to take over construction or hire new project contractors, potentially causing further delays and cost increases. If completion is delayed beyond 2020, the reactors would miss the deadline under current law to receive nuclear production tax credits. Despite Westinghouse’s bankruptcy filing, Toshiba has guaranteed to cover the cost overruns under the Westinghouse contracts. However, Toshiba’s FY2016 financial report said the Westinghouse obligations and other financial conditions raise “substantial doubt about the Company’s ability to continue as a going concern.” The ability of the Summer and Vogtle owners to continue construction may depend partly on Toshiba’s ability to pay the contract guarantees and whether the bankruptcy court orders Westinghouse to make any payments as well. Because Georgia Power and SCE&G are under cost-based economic regulation, their decision to continue construction will depend largely on the extent to which their respective state utility commissions allow any additional cost increases to be passed through to electricity ratepayers. The other members of the Summer and Vogtle ownership groups are electric cooperatives and public power agencies that are not subject to state electricity rate regulation, but they will be equally dependent on the willingness of their members or constituents to pay any cost increases. Department of Energy Loan Guarantees DOE has issued $8.3 billion in loan guarantees to the three primary members of the Vogtle ownership consortium (see Table 1). The guaranteed loans were issued by the Federal Financing Bank. Congressional concern has arisen that the Westinghouse bankruptcy could place taxpayers at risk for the DOE-guaranteed loans that have been issued to date. DOE’s loan guarantee agreements with Georgia Power and Oglethorpe stipulate that if the Vogtle project is terminated, the borrowers must repay the entire outstanding loan amount in five years. (The MEAG agreement was not found in an online search.) In addition, Title XVII the Energy Policy Act of 2005, which established the loan guarantee program, allows the Secretary of Energy to modify the loan agreement terms and take other steps upon a default. Table 1. Guaranteed Loan Disbursements for Vogtle Project ($ in millions) Borrower Loan Guarantee Amount Total Disbursements, 2014-2016 Remaining Guaranteed Amount Georgia Power 3,400 2,625 775 Oglethorpe Power 3,100 1,570 1,530 Municipal Electric Authority of Georgia 1.800 1.137 663 Total 8,300 5,332 2,968 Source: Federal Financing Bank, monthly press release, February 2014 to February 2017, available at https://www.treasury.gov/ffb/press-releases.shtml.

Apr 19, 2017

Border-Adjusted Consumption Taxes and Exchange Rate Movements: Theory and Evidence

In June 2016, House Speaker Paul Ryan proposed a destination-based cash flow tax (DBCFT) as part of the “A Better Way” tax reform blueprint. One component of the DBCFT proposal is the implementation of a border adjustment, which is a common feature of national consumption-based taxes. Were the United States to adopt a DBCFT and the accompanying border adjustment, it would only tax production that is consumed in the United States—domestically produced goods and services sold abroad would not be taxed. Although there are many important issues surrounding a DBCFT that would require careful consideration before implementation, the response of exchange rates is one that has received substantial attention. (For clarity, this report will refer to the border adjustment under a DBCFT as a border-adjustment tax or BAT.) Economists generally agree that standard economic theory predicts exchange rates will adjust to offset the implementation of a BAT in the United States. As a result, in theory a BAT should have no direct effect on the trade balance. The standard theory rests on two important assumptions—flexible U.S. exchange rates and a full border adjustment. The full border adjustment assumption simply means that all imports are taxed at the same rate, and that all exports are completely excluded from taxation. While most economists believe that exchange rates will adjust to offset the tax, there is debate over how fast the adjustment will occur. Some have argued that the adjustment should occur almost instantaneously or even before the tax is enacted if market participants include the tax in the price in anticipation of enactment. Others have argued that there may be frictions that would slow the adjustment process and which could result in a situation where the trade balance does favor exports for a number of years until the exchange rate fully adjusts. Although no other countries have implemented a destination-based cash flow approach to taxation, studies of closely related tax systems may provide some empirical insight into how exchange rates react to border adjustments. The existing literature includes some studies that are broadly supportive of a full exchange rate response and limited timing concerns. Other research has found evidence suggestive of a full exchange rate response in the long run but less clarity in short-term adjustments and industry-specific effects.

Apr 18, 2017

Selected International Insurance Issues in the 115th Congress

The growth of the international insurance market and trade in insurance products and services has created opportunities and new policy issues for U.S. insurers, Congress and the U.S. financial system. Insurance regulation is centered on the states with the federal government having a limited role. While the risks of loss and the regulation may be local, the business of insurance, as with many financial services, has an increasingly substantial international component as companies and investors look to grow and diversify. International insurance trade is covered in the World Trade Organization (WTO) agreements and in a number of U.S. free trade agreements (FTAs). The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank; P.L. 111-203) enhanced the federal role in insurance markets through several provisions, including the Financial Stability Oversight Council’s (FSOC) ability to designate insurers as systemically significant financial institutions (SIFIs); Federal Reserve oversight of SIFIs and insurers with depository affiliates; and the creation of a Federal Insurance Office (FIO) inside the Treasury Department. Alongside FIO, Dodd-Frank defined a new class of international insurance agreements called covered agreements for recognition of prudential measures which the FIO and the United States Trade Representative (USTR) may negotiate with foreign entities. Although not a regulator, FIO has the authority to monitor the insurance industry and limited power to preempt state laws in conjunction with covered agreements. Dodd-Frank requires congressional consultations and a 90-day layover period for covered agreements, but such agreements do not require congressional approval. International Insurance Stakeholders and Concerns The international response to the financial crisis included the creating a Financial Stability Board (FSB), largely made up of various countries’ financial regulators, and increasing the focus of the International Association of Insurance Supervisors (IAIS) on creating regulatory standards, especially relating to insurer capital levels. The Federal Reserve and the FIO have assumed roles in the IAIS whereas previously the individual states and the U.S. National Association of Insurance Commissioners (NAIC) had been the only U.S. members. The Dodd-Frank Act also created the position of independent insurance expert as a member of FSOC, though the FSOC independent insurance expert has generally not participated in international bodies with a focus on systemic risk. Any agreements reached under the FSB or IAIS would have no legal impact in the United States until adopted in regulation by federal or state regulators or enacted into federal or state statute. Congress has little direct role in international regulatory cooperation agreements such as those reached at the FSB or IAIS. The new federal involvement in insurance issues has created frictions both among the federal entities and between the states and the federal entities, and has been a subject of congressional hearings and proposed legislation. The first covered agreement, negotiated with the European Union (EU), was submitted to Congress on January 13, 2017. The agreement was largely rejected by the states and the NAIC, with the insurance industry split in its support, or lack thereof, for the agreement. The 90-day congressional layover period has ended, but the agreement and has yet to be fully approved by the European Union. Issues for Congress Congressional interest in international insurance issues includes: (1) the recently negotiated covered agreement addressing the EU treatment of U.S. insurers and the U.S. state requirements for reinsurance collateral; and (2) the potential impact of international organizations and standards on the United States. Although the U.S.-EU covered agreement and potential IAIS standards are formally separate, there is some overlap. For example, the EU plays a significant role in developing international standards and would have an interest in seeing its regulatory approaches incorporated in such standards as opposed to U.S. approaches.

Apr 17, 2017

Foreign Direct Investment: Background and Issues

Apr 17, 2017

U.S.-UK Free Trade Agreement: Prospects and Issues for Congress

Prospects for a bilateral free trade agreement (FTA) between the United States and the United Kingdom (UK) are of increasing interest for both sides. In a national referendum held on June 23, 2016, a majority of British voters supported the UK exiting the European Union (EU), a process known as “Brexit.” The Brexit referendum has prompted calls from some Members of Congress and the Trump Administration to launch U.S.-UK FTA negotiations, though some Members have moderated their support with calls to ensure that such negotiations do not constrain the promotion of broader transatlantic trade relations. On January 27, 2017, President Trump and UK Prime Minister Theresa May discussed how the two sides could launch high-level talks and “lay the groundwork” for a future U.S.-UK FTA. Negotiations on a bilateral FTA between the United States and UK would represent a change in U.S. transatlantic trade policy, which has recently focused on negotiating a U.S.-EU Transatlantic Trade and Investment Partnership (T-TIP) FTA. Formal U.S.-UK FTA negotiations cannot start immediately. On March 29, 2017, Prime Minister May sent a letter to the European Council notifying it of the UK’s intention to leave the EU, triggering the two-year Article 50 exit process under the Treaty of the European Union. Until the UK formally exits, it remains a member of the EU, which retains exclusive competence over trade negotiations. During this time, and in the absence of any preferential trade agreement between the United States and the EU, World Trade Organization (WTO) parameters continue to govern U.S.-UK trade—as they do for U.S. trade with all other EU member states. In the meantime, the United States and the UK could pursue preliminary “informal” discussions on a potential bilateral FTA. The prospects for a future U.S.-UK FTA depend on a number of variables, including the terms of the UK’s negotiated withdrawal from, and future trade relationship with, the EU, as well as the UK’s redefined terms of trade within the WTO. A U.S.-UK FTA could include reciprocal provisions to expand access to goods, services, agriculture, and government procurement markets; enhance and develop new bilateral trade-related rules and disciplines in areas such as intellectual property rights (IPR), investment, and digital trade; and cooperate on regulatory issues such as transparency and sector-specific concerns. Congress has important legislative, oversight, and advisory responsibilities with respect to any potential U.S.-UK FTA. The U.S. Constitution grants Congress the power to regulate commerce with foreign nations. Congress also establishes overall U.S. trade negotiating objectives, which it updated in the 2015 Trade Promotion Authority (TPA) legislation (P.L. 114-26). In addition, Congress would need to approve future implementing legislation for a final U.S.-UK FTA to enter into force. Under TPA, an FTA could be eligible to receive expedited legislative consideration if Congress determines that the FTA advances trade negotiating objectives and satisfies TPA’s various other requirements, including notification to and consultations with Congress on the status of the negotiations.

Apr 14, 2017

Senate Proceedings Establishing Majority Cloture for Supreme Court Nominations: In Brief

On April 6, 2017, the Senate reinterpreted Rule XXII to allow a majority of Senators voting, a quorum being present, to invoke cloture on nominations to the U.S. Supreme Court. Before the Senate reinterpreted the rule, ending consideration of nominations to the Supreme Court required a vote of three-fifths of Senators duly chosen and sworn (60 Senators unless there is more than one vacancy). The practical effect of the Senate action on April 6 was to reduce the level of support necessary to confirm a Supreme Court nominee. The method used to reinterpret Senate Rule XXII is, perhaps, of as much interest as the practical effect of the ruling. The proceedings of April 6, 2017, were similar to those of November 21, 2013, when the Senate reinterpreted the cloture rule to lower the threshold for invoking cloture for all nominations except to the Supreme Court. Proceedings of this kind have been called “the nuclear option” because they required actions arguably at variance with established principles underlying Senate procedure. Specifically, in both of these cases, a simple majority of Senators took unusual and contested floor actions to limit the ability of a minority to filibuster. As a result of these two precedents, the Senate can now invoke cloture on any nomination by a majority vote. Importantly, neither the 2013 nor the 2017 precedent removed the potential need to invoke cloture on a nomination to reach a vote. The process for invoking cloture on a nomination remains the same. A cloture motion filed on a nomination receives a vote after two days of Senate session. If, on that vote, a majority of Senators voting supports cloture, the Senate will reach—after no more than 30 additional hours of consideration—a vote on the nomination, with final approval subject to a simple majority vote. This brief report explains the actions taken on April 6, 2017, by which the Senate effectively extended to Supreme Court nominations its November 2013 reinterpretation of Rule XXII. It concludes with a list of related CRS products that provide more history and context regarding the method used to reinterpret the Senate Rule, the nominations process, and cloture and filibusters.

Apr 14, 2017

NASS and U.S. Crop Production Forecasts: Methods and Issues

The National Agricultural Statistics Service (NASS) of the U.S. Department of Agriculture (USDA) estimates agricultural production (including area and yield) and stocks for more than 120 crops and 45 livestock items. Traditionally NASS estimates have focused on state and national data, but in recent years county-level estimates have gained in importance. NASS crop production estimates are crucial to people in the U.S. agricultural sector involved in making marketing and investment decisions, policymakers who design farm support programs, USDA agents who implement those programs, and producers who benefit from those programs. NASS conducts hundreds of surveys every year and prepares reports covering many aspects of U.S. agriculture. For example, NASS survey data are used to produce forecasts of area, yield, production, value, and stocks for major crop and livestock products, as well as for estimates of the historical number of farms and land in farms, land rental rates and values, farm labor usage, fertilizer and chemical usage, computer usage and ownership on farms, and farm production expenditures. NASS also undertakes a National Census of Agriculture every five years that provides comprehensive information about the nation’s agriculture down to the county level. The census includes data on the number of farms, land use, production expenses, value of land and buildings, farm size and characteristics of farm operators, market value of agricultural production sold, acreage of major crops, inventory of livestock and poultry, and farm irrigation practices. NASS spending is controlled by annual appropriations acts. In FY2016, Congress appropriated $177 million for NASS operations, including $126.2 million (75% of its budget) for annual agricultural estimates and $42.2 million (25%) for the Census of Agriculture. The critical role that NASS data plays in promoting a smooth and efficient marketing process for U.S. agriculture makes NASS’s successful function a concern of Congress. In particular, three issues related to NASS’s survey methodology and crop estimates are of potential concern to Congress. First, a trend has emerged since the early 1990s of declining NASS survey response by farmer participants. For most crops, NASS production estimates are based on data collected from farm operations via grower survey responses. The quality of NASS crop acreage and production estimates depends on a high level of participation by agricultural producers. As the number of respondents falls, the statistical reliability of estimates and forecasts declines and the value of NASS estimates for a host of other purposes declines as well. The second issue derives primarily from the first in that the declining survey response impacts more localized or regional estimates first, particularly county-level estimates and those programs that are based on county-level data. In particular, insufficient response rates in some counties have led to unexpectedly wide discrepancies across counties in farm program payment rates under the county-based revenue support program—Agricultural Risk Coverage (ARC-CO)—established under the 2014 farm bill (P.L. 113-79). These discrepancies have generated concern about whether the new revenue program is working as intended or whether this is simply a data problem that needs to be addressed. Barring any near-term fix by USDA, lawmakers may elect to address county-to-county payment disparities in the context of the next farm bill. Third, market participants and policymakers alike are concerned that NASS estimates be unbiased and objective so as not to influence market prices or volatility. Analysis of NASS data suggests that it is both objective and trustworthy; however, variability of data as measured by market price reactions to NASS estimates appears to have increased in recent years.

Apr 13, 2017

Office of Government Ethics: A Primer

Apr 13, 2017

U.S. Strategy for Engagement in Central America: Policy Issues for Congress

Central America has received renewed attention from U.S. policymakers over the past few years as the region has become a major transit corridor for illicit drugs and a significant source of irregular migration to the United States. These narcotics and migrant flows are the latest symptoms of deep-rooted challenges in several countries in the region, including widespread insecurity, fragile political and judicial systems, and high levels of poverty and unemployment. Although the Obama Administration and governments in the region launched new initiatives designed to improve conditions in Central America, the future of those efforts will depend on the decisions of the Trump Administration and the 115th Congress. U.S. Strategy for Engagement in Central America The Obama Administration determined it was in the national security interests of the United States to work with Central American governments to address conditions in the region. Accordingly, the Obama Administration launched a new, whole-of-government U.S. Strategy for Engagement in Central America. The new strategy takes a broader and more comprehensive approach than previous U.S. initiatives in the region and is based on the premise that efforts to promote prosperity, improve security, and strengthen governance are mutually reinforcing and of equal importance. The new strategy focuses primarily on the “northern triangle” countries of Central America—El Salvador, Guatemala, and Honduras—which face the greatest challenges. Nevertheless, it also provides an overarching framework for U.S. engagement with the other countries in the region: Belize, Costa Rica, Nicaragua, and Panama. The new U.S. strategy and the northern triangle governments’ Alliance for Prosperity initiative have similar objectives and fund complementary efforts; however, they have prioritized different activities. Initial Funding and Conditions Congress has appropriated $1.3 billion to begin implementing the new Central America strategy, dividing the funds relatively equally among efforts to promote prosperity, strengthen governance, and improve security. This figure includes $560 million appropriated in FY2015 and $750 million appropriated in FY2016 (through P.L. 113-235 and P.L. 114-113, respectively). Congress placed strict conditions on the FY2016 aid, requiring the northern triangle governments to address a range of concerns, including border security, corruption, and human rights, to receive assistance. As a result of those legislative requirements and delays in the budget process, most of the FY2016 funding did not begin to be delivered to Central America until early 2017. Future Appropriations and Other Policy Issues Congress is still considering FY2017 appropriations and soon will begin deliberating over President Trump’s FY2018 budget request. The Obama Administration requested $750 million for the Central America strategy in FY2017, but assistance for the region currently is being provided through a continuing resolution (P.L. 114-254) that funds foreign aid programs at the FY2016 level minus an across-the-board reduction of 0.1901%, until April 28, 2017. The Trump Administration’s FY2018 budget blueprint proposes deep cuts to foreign aid globally, but does not specify how those cuts would affect Central America. Congress may examine a number of policy issues as it deliberates on the future of the Central America strategy. These issues include the extent to which Central American governments are demonstrating the political will to undertake domestic reforms; the utility of the conditions placed on assistance to Central America; and the potential implications of changes to U.S. immigration, trade, and drug control policies for U.S. objectives in the region.

Apr 12, 2017

Surface Transportation Devolution

Surface transportation “devolution” refers to shifting most current federal responsibility for building and maintaining highways and public transportation systems from the federal government to the states. Devolution legislation has been introduced in each Congress since the mid-1990s, supported by Members who regard the federal government as being overinvolved in highways and public transportation. Under such proposals, the federal taxes that now support surface transportation programs, mostly fuels taxes, would be reduced in line with the shift of responsibility to the states. The states could then raise their own taxes to pay for highway and transit projects as they see fit. A small program, funded by much-reduced motor fuel taxes, would remain in place at the federal level to maintain roads on federal lands, fund highway safety efforts, and support other programs Congress decides not to devolve. Beyond the basic small government argument, advocates of devolution generally assert that it will lower costs and accelerate construction of highway and transit projects by freeing them from a wide variety of federal regulations. They also contend that devolution will be fairer than the present systems for distributing highway and public transportation funding, which give some states more money, relative to their residents’ motor fuel tax payments, than other states. Opponents of devolution question whether it will save money and worry that it could interfere with national goals established by Congress, such as maintaining important interstate freight corridors and adhering to uniform national construction standards. They point out that the last two surface transportation reauthorization acts have greatly reduced the number of programs and given states greater control over highway expenditures while excluding earmarks, addressing some of the complaints that originally led to calls for devolution. There are several significant issues Congress would face if it were to consider devolution. Among them are the following: Devolution would involve substantial upfront costs, possibly as much as $84 billion over a period of several years, to pay for outstanding highway and transit obligations. Even if the federal government hands responsibility for funding new highway and public transportation projects to the states, it would need to retain federal motor fuels taxes or some other revenue source until it has repaid the states for projects in progress as of the date devolution takes effect. Replacing the reduced federal taxes on a cent-for-cent basis would not provide enough revenue to fund the current level of spending on surface transportation. Nearly all states would have to increase their taxes by an amount larger than the reduction in federal taxes, unless they choose to reduce spending. Devolution would likely increase the use of tax-exempt bonds by the states, reducing federal revenue beyond the amount of forgone highway taxes.

Apr 12, 2017

Cost-Benefit Analysis and Financial Regulator Rulemaking

Cost-benefit analysis (CBA) in the federal rulemaking process is the systematic examination, estimation, and comparison of the potential economic costs and benefits resulting from the promulgation of a new rule. Agencies with rulemaking authority implement regulations that carry the force of law. While this system allows technical rules to be designed by experts that are to some degree insulated from political considerations, it also results in rules being implemented by executive branch staff that arguably are not directly accountable to the electorate. One method for Congress to increase accountability is to require the regulators to conduct analyses of likely effects of proposed regulations. In this way, an agency demonstrates that it gave reasoned consideration to the effects of the proposed rules. CBA is an important type of such analysis, as comparing costs and benefits can be useful in determining whether or not a regulation is beneficial. However, performing CBA can be a difficult and time-consuming process, and it produces uncertain results because it involves making assumptions about future outcomes. Some observers argue that financial regulation CBA is particularly challenging. This raises questions about what parameters and level of detail agencies should be required to include in their CBA. While most federal regulatory agencies are directed by Executive Order 12866 and Office of Management and Budget Circular A-4 in their performance of CBAs, financial regulators are generally not subject to these directives. Financial regulators are statutorily required to perform certain CBA: requirements such as the Paperwork Reduction Act (P.L. 104-13) and Regulatory Flexibility Act (P.L. 96-354) generally apply to all financial regulators; financial regulators that regulate the banking system are subject to requirements set out in the Riegle Community Development and Regulatory Improvement Act (P.L. 103-325); and agencies such as the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB,) and the Commodities Futures Trading Commission (CFTC) face requirements specific to them. However, the requirements facing individual financial regulators generally allow them to perform analysis under less specific instruction than is contained in the requirements that are cited above and apply to nonindependent regulatory agencies. Whether the requirements facing financial regulators should allow for this discretion is a contentious issue. Some observers assert that financial regulators should maintain a relatively high degree of discretion over when and how to conduct CBA. They argue that characteristics of the financial industry and regulation make CBAs in this area especially uncertain and contestable, and assert that financial regulation effects depend entirely on human and market reactions; finance plays a central role in a huge, complex economic system; and financial regulations’ effects are more likely (relative to other types of regulation) to include transfers between groups not well accounted for in net measurements. They further argue that requisite CBAs that are uncertain and contestable are more likely to disguise agency discretion as objective fact and provide the opportunity for interested parties to challenge socially beneficial regulation with their own subjective, self-interested analyses. Other observers assert that financial regulators should face more stringent requirements than they currently do. They refute claims that financial CBAs are necessarily more uncertain or contestable than in other areas. Also, they argue that tools and techniques would be developed to overcome challenges if CBAs were required. They further argue that even uncertain and contestable CBAs are effective in disciplining agencies because they create transparency of the agency’s evaluations of proposed regulations and allow for outside assessment of that evaluation. Recent Congresses have been active on this issue, and the House has passed several bills in the 115th Congress that would increase CBA requirements. Recent proposals would affect either all regulators including financial regulators, financial regulators as a group, or individual financial regulators.

Apr 12, 2017

FDA Risk Evaluation and Mitigation Strategies (REMS): Description and Effect on Generic Drug Development

The Food and Drug Administration (FDA) regulates the safety and effectiveness of drug products sold in the United States. The statutory standard for FDA approval is that a drug is safe and effective for its intended use. FDA’s determination that a drug is safe does not signify an absence of risk but rather that the drug’s clinical benefits outweigh its known and potential risks. For most drugs, FDA has generally considered routine risk minimization measures to be sufficient; for example, updated labeling based on new information from postmarket surveillance. In certain cases, however, the agency has recommended or required additional measures to minimize drug risk. Early risk management programs at FDA, voluntarily instituted by manufacturers, included elements such as education for patients and providers, and restrictions on distribution. In 2007, the FDA Amendments Act (FDAAA) expanded the risk management authority of FDA, authorizing the agency to require for certain drugs, under specified conditions, risk evaluation and mitigation strategies (REMS). REMS is a required risk management plan that uses risk mitigation strategies beyond FDA-approved professional labeling. As part of a REMS, a drug manufacturer may be required to provide certain information to patients (e.g., a medication guide) and health care providers (e.g., a communication plan) or to impose restriction on a drug’s sale and distribution via one or more “Elements to Assure Safe Use” (ETASU). A REMS-restricted distribution program controls the chain of supply so that the drugs are provided only to patients with prescriptions from authorized physicians or pharmacies under specified conditions. Although the law prohibits the holder of an approved new drug or biologics license application (i.e., the brand company) from using ETASU “to block or delay approval of an application,” FDA, the Federal Trade Commission, generic drug manufacturers, and some Members of Congress have expressed concern that brand companies are using REMS to prevent or delay generic drugs from entering the market. A 2014 study sponsored by the Generic Pharmaceutical Association (GPhA; recently renamed as the Association for Affordable Medicines [AAM]) estimated that misuse of REMS and other restricted distribution programs costs the United States $5.4 billion annually, with the federal government bearing a third of this burden. REMS have come up in the context of user fee reauthorization, with the Director of the Center for Drug Evaluation and Research at FDA testifying that some brand drug manufacturers have used REMS and distribution restrictions to delay or refuse to sell quantities of a brand-name drug to generic product developers, potentially delaying consumer access to less expensive generic drugs. Without the brand-name drug against which to test bioequivalence of the generic product, the generic product developer cannot complete the required application to FDA. Others argue that REMS are rare, and that FDA only requires REMS with restricted distribution for drugs that would otherwise not be allowed on the market due to safety risks. In the 114th Congress, two bills were introduced to keep brand companies from using REMS to prevent or delay generic drugs from entering the market: the Fair Access for Safe and Timely Generics Act of 2015 (or the FAST Generics Act of 2015 [H.R. 2841]) and the Creating and Restoring Equal Access to Equivalent Samples Act of 2016 (or the CREATES Act of 2016 [S. 3056]). As of the date of this report, neither of these two bills has been reintroduced in the 115th Congress. However, in the 115th Congress, two bills have been introduced that address generic drug development: the Lower Drug Costs through Competition Act (H.R. 749) and the Increasing Competition in Pharmaceuticals Act (S. 297). Both bills contain a provision titled “Study on REMS,” which would require GAO to conduct a study on REMS and its implementation; the study would examine, among other things, the “burden associated with REMS,” including on generic drug manufacturers.”

Apr 11, 2017

California Drought: Busted?

Surface water conditions in California have recovered dramatically in recent months, but some consequences of the 2012-2016 drought likely will linger for years. This Insight discusses the status of the drought and how it affected groundwater supplies: declines in groundwater levels, decreased storage capacity, and land subsidence. In response to the drought, the 114th Congress enacted legislation (P.L. 114-322) that altered the authorities regarding how federal water infrastructure in the state is managed and how new water storage may be developed. (See CRS In Focus IF10626, Reclamation Water Storage Projects: Section 4007 of the Water Infrastructure Improvements for the Nation Act). In the 115th Congress, there is both interest and concern about the federal role and funding for new water infrastructure to cope with the next drought and with hydrologic conditions that can quickly transition from drought to flood conditions. What a Difference a Year Makes After five years of drought, California is experiencing wetter-than-normal conditions in 2017. For example, snowpack water content in the Sierra Nevada Mountains as of April 5, 2017, stood at 159% of average. Figure 1. California Snow-Water Content: April 5, 2017 (for the North, Central, and South Sierra Nevada) / Source: California Department of Water Resources (CA DWR). Notes: Light blue shaded area indicates the average value; dark blue line indicates 2016-2017; red line indicates the 2014-2015 year, which was the minimum recorded. All lines indicate the percentage relative to the April 1 average. The U.S. Drought Monitor also indicates that drought conditions statewide have improved markedly compared to recent years. Figure 2. U.S. Drought Monitor Comparison of California: 2016 Versus 2017 (left: April 5, 2016; right: April 4, 2017) / Source: U.S. Drought Monitor. In early April 2016, approximately 55% of California was classified as experiencing at least extreme drought conditions and nearly 32% was experiencing exceptional drought. A year later, none of the state is classified as experiencing extreme or exceptional drought and more than three-quarters of California is not facing any drought conditions. Why Is 2017 Different? A series of winter storms—known as atmospheric rivers, or ARs—tracked across California during the 2016-2017 winter and dropped snow and rain nearly statewide. ARs are also referred to as “drought busters” for their ability to deliver huge amounts of precipitation over a short period of time. Studies indicate that ARs are the source of 30%-50% of all precipitation along the U.S. West Coast. The 2016-2017 winter storms were primarily responsible for statewide precipitation levels in January 2017 of 10.3 inches and in February 2017 of 8 inches, corresponding to 225% and 166%, respectively, above the average for those months since 1895. ARs can erase one natural hazard, drought, but can cause another hazard—floods. They are the source of a large majority of floods along the U.S. West Coast, according to studies. When ARs deliver above-average winter precipitation, reservoir managers must balance maintaining reservoir storage space to capture floodwaters with keeping reservoirs full (with little flood storage capacity) to meet water supply demands during the summer. Recent conditions at Lake Oroville, California’s second-largest reservoir, highlighted that challenge. Is the Drought Over? The U.S. Drought Monitor and other indicators (e.g., current status of the state’s major reservoirs) suggest that the drought has largely abated for most of California, and Governor Brown recently announced an end to the statewide Drought State of Emergency. However, the cumulative effects of the multiyear drought—particularly on groundwater supplies—are significant. Unlike surface water, which can recover from drought relatively quickly in a wet year, the amount of groundwater stored in many depleted aquifers likely will take much longer to recover and may never regain pre-drought levels. Figure 3. Reservoir Conditions for Major California Reservoirs / Source: CA DWR. During the recent drought, California irrigators increasingly relied on groundwater to substitute for surface water. Consequently, groundwater levels in the state’s Central Valley dropped, particularly in the San Joaquin Valley (SJV). For example, aquifer levels in parts of the SJV experienced water-level drops of more than 50 feet between 2011 and 2016. In some locations, decreased groundwater levels cause the ground surface to drop in elevation (land subsidence). Subsidence was as much as 22 inches in some areas of the southern SJV between 2015 and 2016. Figure 4. Change in Groundwater Levels in California (fall 2011 to fall 2016) / Source: CA DWR. Note: Groundwater level changes determined from water level measurements in wells. In some locations the land surface may rebound a small amount (known as elastic deformation) with groundwater recharge; for many locations, the land surface does not recover (inelastic deformation). Parts of the southern SJV experienced nearly 27 feet of permanent land subsidence in the last century due to groundwater pumping. Permanent subsidence means that the thickness of the aquifer shrinks, which decreases the aquifer’s capacity to store groundwater. Another potential consequence is damage to surface structures, such as canals, levees, roads, and foundations of structures. The recent drought, for example, resulted in damage to the Delta-Mendota Canal, buckling the concrete sides in some places. In another area of the canal, a bridge dropped so low it nearly touched the surface of the water. Figure 5. How Land Subsidence Occurs When Groundwater Levels Drop / Source: U.S. Geological Survey, Land Subsidence: Cause & Effect. Note: An aquitard is a layer or portion of the sediments that restricts water flow between aquifers. Outlook The atmospheric river “drought-busters” have nearly wiped out the surface water deficit in California that built up during five years of drought, and high snowpack levels portend that reservoirs will be amply supplied during spring runoff. Groundwater storage deficits linger, however, and serve as a reminder that the drought’s unseen effects likely will be felt for many years. How groundwater and surface water are stored and managed and how federal initiatives in P.L. 114-322 are carried out, together with state and local actions, likely will shape California’s resilience to its next drought.

Apr 11, 2017

Farm Bill Primer: Rural Development Title Provisions

Apr 10, 2017

Multinational Species Conservation Fund Semipostal Stamp

The Multinational Species Conservation Fund (MSCF) supports international conservation efforts benefitting several species of animals, often in conjunction with efforts under the Convention on International Trade in Endangered Species (CITES). MSCF receives annual appropriations under the U.S. Fish and Wildlife Service (FWS) to fund five grant programs for conserving tigers, rhinoceroses, Asian and African elephants, marine turtles, and great apes (gorillas, chimpanzees, bonobos, orangutans, and various species of gibbons). To provide a convenient way for the public to contribute to these activities and to boost funds for these conservation programs, Congress authorized the Multinational Species Conservation Funds Semipostal Stamp Act of 2010 (P.L. 111-241). With the MSCF semipostal stamp (MSCF stamp) program set to expire in 2017, Congress is considering whether to reauthorize the MSCF stamp through pending legislation (e.g., S. 480 and H.R. 1247). Semipostal stamps are postage stamps that are sold with a surcharge above the normal price for a 1-ounce first-class letter stamp. For example, the current price for a first-class stamp is 49 cents, whereas a first-class semipostal stamp costs 60 cents. The additional charge is recognized by the stamp purchaser as a voluntary contribution to a designated cause. Since 1997, Congress has authorized the U.S. Postal Service (USPS) to sell four different semipostal stamps, including the MSCF stamp. The MSCF stamp, entitled “Save Vanishing Species,” was first issued by USPS on September 22, 2011. A portion of the stamp’s sale proceeds is transferred to the U.S. Fish and Wildlife Service, which administers the MSCF and provides grants to international organizations to help protect the species listed above. As of November 2016, proceeds from MSCF stamp sales had generated more than $3.9 million for the MSCF. Many view semipostal stamps as an easy and inexpensive way to raise funds and awareness for a given organization or cause. Some contend that the MSCF stamp provides a significant amount of funding for MSCF conservation programs and raises awareness about the conservation of certain international threatened and endangered species. Others argue that semipostal stamps detract from the mission of the USPS and divert consumers away from other stamps the USPS has to offer. Additionally, some contend that other causes could benefit more than the MSCF from a semipostal stamp program.

Apr 7, 2017

Buy America, Transportation Infrastructure, and American Manufacturing

Apr 7, 2017

Federal Disaster Assistance: The National Flood Insurance Program and Other Federal Disaster Assistance Programs Available to Individuals and Households After a Flood

After a flood, people are often uncertain if their eligibility for federal disaster assistance is linked in any way to whether or not they have flood insurance. Because much of the other disaster assistance that is available to individuals comes from the Federal Emergency Management Agency (FEMA), there may be confusion between possible claims provided through the National Flood Insurance Program (NFIP, which is also managed by FEMA), and other disaster assistance programs. This report provides an overview of the assistance available to individuals and households following a flood and provides links to more comprehensive guidance on both flood insurance and disaster assistance. The National Flood Insurance Program (NFIP) is the main program intended to provide federal assistance to homeowners and renters recovering from flood losses. The maximum coverage for one- to four-family homes is $100,000 for contents and $250,000 for buildings coverage. In addition to NFIP claims payments to policyholders, homeowners and renters may also access a number of other federal programs aimed at mitigating the impact on individuals and households. The principal FEMA program to offer assistance to individuals and families is the Individual and Households Program (IHP). The total of all IHP assistance to one household cannot exceed $33,300. IHP recipients whose homes are located in a Special Flood Hazard Area, are in a community participating in the NFIP, and who receive assistance for repair, replacement, permanent housing construction, and/or personal property as a result of a flood-related disaster must obtain and maintain flood insurance as a condition of accepting disaster assistance. The Small Business Administration (SBA) Disaster Loan Program provides direct loans to businesses, nonprofit organizations, homeowners, and renters to repair or replace property destroyed in a federally declared disaster. A Personal Property Loan provides a creditworthy homeowner or renter in a declared disaster area with up to $40,000 to repair or replace personal property owned by the survivor, while Real Property Loans provide creditworthy homeowners with up to $200,000 to repair or restore the homeowners’ primary residence to its predisaster condition. Recipients of SBA loans must carry flood insurance for the life of the loan. In some instances that are perceived as catastrophic events, Congress has provided additional resources to states and local governments through the Department of Housing and Urban Development’s Community Development Block Grant Disaster Recovery Program (CDBG-DR); however, the CDBG-DR program is not automatically triggered by a disaster. Due to the block grant nature of the program, local and state officials exercise a great deal of discretion in determining which combination of eligible activities to employ. This allows communities to use CDBG-DR funds to meet disaster-related needs, including short-term disaster relief, mitigation activities, and long-term recovery activities. HUD does not provide CDBG-DR funding directly to individuals; however, individuals and families may benefit from a number of the eligible activities for which CDBG-DR funds can be used. Unless the individual state requires the purchase of flood insurance, the recipients of CDBG-DR grants are exempt from the requirement to purchase flood insurance. The NFIP’s authorization expires on September 30, 2017. If the NFIP is not reauthorized and is allowed to lapse, the authority to provide new flood insurance contracts will expire. If the NFIP were to lapse, the unavailability of NFIP insurance could have an impact on other programs such as IHP, SBA disaster loans, and CDBG-DR. Separately from or in conjunction with NFIP reauthorization, the impacts on such other programs may be useful to consider. In particular, Congress may consider revising the requirements for flood insurance in the Flood Disaster Protection Act.

Apr 6, 2017

H.R. 1219 and S. 444: Supporting America’s Innovators Act of 2017

Introduction To help restore confidence in the securities markets after the stock market crash of 1929, Congress passed the Securities Exchange Act of 1934, which authorized creation of the Securities and Exchange Commission (SEC). The SEC is an independent, nonpartisan regulatory agency responsible for administering federal securities laws. It has broad regulatory authority over significant parts of the securities industry, including stock exchanges, mutual funds, investment advisers, and brokerage firms. Among the major federal securities statutes that the SEC enforces is the Investment Company Act of 1940 (ICA; P.L. 76-768). According to the SEC, the ICA applies to investment companies, and investment vehicles (such as mutual funds) that are “engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities,’ or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities, and owns or proposes to acquire investment securities’ having a value exceeding 40% of the value of its total assets.” The SEC has described the ICA as designed to minimize conflicts of interest that arise in these complex operations. The Act requires these companies to disclose their financial condition and investment policies to investors when stock is initially sold and, subsequently, on a regular basis. The focus of...[the] Act is on disclosure to the investing public of information about the fund and its investment objectives, as well as on investment company structure and operations. The ICA excludes certain investment pools, including hedge funds, from the definition of investment company, thus exempting them from the authority of its regulation when they have certain qualifying exceptions. One exception from the definition of an investment company and thus registration under the ICA is to a pooled investment entity whose outstanding stock is owned by 100 beneficial owners or fewer (a beneficial owner is a person who enjoys the benefits of ownership even when the title to a security is in another person’s name such as a broker-dealer who is acting on behalf of an investor) and is not currently making nor intends to make a public securities offering. Under the ICA, once an entity takes on the 101st owner, it must register as an investment company and begin incurring the potentially significant time and money costs associated with registration. Organized and run by their general partners, venture capital funds are investment pools that manage the funds of their wealthy investors interested in acquiring private equity stakes in emerging small- and medium-sized firms and startup firms with perceived growth potential. The funds often take an active role in the businesses, including providing managerial guidance and occupying corporate board seats. Venture capital funds with 100 or fewer beneficial owners are also not defined as investment companies, exempting them from the ICA registration requirement. H.R. 1219 and S. 444 Currently, there are concerns within the business community over the perceived behavioral impact of the 100-investor limit on venture capital funds. Some observers have said that to avoid ICA registration and its potentially significant money and time costs, some venture capital funds appear to be reluctant to add additional investors, a potential loss of opportunities to expand the capital that they might use to invest in and help grow various businesses, which has historically included high-tech firms for some funds. H.R. 1219, which has been marked up by the House Financial Services Committee, and S. 444, which has been marked up by the Senate Committee on Banking, Housing, and Urban Affairs (115th Congress), are legislative attempts to address such concerns. The bills would amend the ICA by creating a new subset of venture capital fund called a qualified venture capital fund (QVCF). QVCFs would be venture capital funds (as defined in federal securities law) with no more than $10 million in invested capital that could be owned by up to 250 beneficial investors before triggering the ICA registration requirement. In the 114th Congress, similar legislation, H.R. 4854, passed the House. Some proponents of the bills have argued they would generally help to broaden access to capital for small businesses, thus boosting their prospects to thrive. The bills’ sponsors, Representative Patrick McHenry and Senator Heidi Heitkamp, however, have emphasized more targeted additional benefits. They have asserted that the bills would be particularly helpful at expanding the number of venture capital funds in rural areas, helping to nurture more rural startups and small businesses. By contrast, the North American Securities Administrators Association (NASAA), a group of state and provincial securities regulators, examined a similar bill, an early version of H.R. 4854 in the 114th Congress (which would have expanded the beneficial investor cap to 500 instead of 250, while the version that passed the House provided for a cap of 250) largely through an investor protection lens. The fundamental concern raised in its analysis was that by broadening existing regulatory exemptions, the legislation would expand the universe of investment vehicles devoid of regulatory oversight to the detriment of fund investors. On March 22, 2017, the Congressional Budget Office issued comments on H.R. 1219: “Enacting H.R. 1219 would not affect direct spending or revenues; therefore, pay-as-you-go procedures do not apply. CBO estimates that enacting H.R. 1219 would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2028.”

Apr 5, 2017

Gun Control, Veterans Benefits, and Mental Incompetency Determinations

On March 16, 2017, the House of Representatives passed the Veterans 2nd Amendment Protection Act (H.R. 1181) by a roll call vote (240-175). Under H.R. 1181, the Department of Veterans’ Affairs (VA) would be prohibited from determining any beneficiary for whom a fiduciary is appointed, because he or she “lacks the capacity to contract or handle his or her own affairs,” as “adjudicated as a mental defective” for the purposes of gun control, unless a magistrate or judicial authority also rules that the beneficiary is a danger to himself or herself or others. Pursuant to the Brady Handgun Violence Prevention Act, 1993 (Brady Act; P.L. 103-159), since 1998, the VA has provided records on beneficiaries for whom a fiduciary has been appointed to the Federal Bureau of Investigation (FBI) for inclusion in the National Instant Criminal Background Check System (NICS). Pursuant to the NICS Improvement Amendments Act of 2007 (NIAA; P.L. 110-180), the VA was required to notify beneficiaries of the ramifications of mental incompetency determinations and a potential loss of their gun rights, as well as provide those beneficiaries with an avenue of administrative relief, by which they could appeal such determinations and have their rights restored. In the 21st Century Cures Act (P.L. 114-255), Congress included a provision that codified certain VA procedures related to mental incompetency determinations and potential loss of gun rights. Since 2008, however, the legislative history also shows that some Members of Congress have viewed those VA procedures, even after the implementation of NIAA provisions, as inadequate. From the 110th through the 113th Congresses, proposals similar to H.R. 1181 were reported from committee, passed either the House or Senate, or both. In the 114th Congress, related amendments were considered, but not passed, on the Senate floor in the wake of mass shooting incidents in December 2015 in San Bernardino, CA, and in June 2016 in Orlando, FL. In the 115th Congress, moreover, a measure was passed that vacated a final rule issued by the Social Security Administration (SSA) in December 2016 that would have established parallel but different procedures for Social Security disability programs and NICS referrals (P.L. 115-8). Under the vacated rule, SSA disability beneficiaries who were appointed a “representative payee” to handle their day-to-day affairs and whose disability could be tied to a mental impairment would have been referred to the FBI for inclusion in NICS. According to the FBI, as of December 31, 2016, federal departments and agencies had contributed 173,083 records in the NICS index “adjudicated mental health” file, of which the VA contributed 167,815 (98.1%). Supporters of H.R. 1181 view the existing VA procedures as an incongruity in the law. They ask why the VA is the only federal department or agency that has made substantial numbers of NICS referrals to the FBI based on mental incompetency determinations, even though other federal agencies that provide similar disability and income security benefits have not done so. In their opinion, this seeming incongruity calls into question whether the VA benefit claims and disability rating procedures are substantive enough on their own to justify the taking of a constitutionally enumerated right like the right to keep and bear arms under the Second Amendment. Opponents of H.R. 1181 contend that the VA has complied with the Brady Act and NIAA and that public safety is enhanced by its NICS referrals to the FBI. They contend further that the VA procedures act to protect VA beneficiaries from the harm that might result if they acquired firearms and used them improperly due to reasons possibly related to their mental incompetency. In their view, moreover, Congress seconded the VA procedures by codifying them in P.L. 114-255.

Apr 5, 2017

U.S. Climate Change Regulation and Litigation: Selected Legal Issues

On March 28, 2017, President Trump signed an executive order to encourage and promote energy development by modifying climate change policies. As the Trump Administration implements its environmental policies, various legal challenges to Obama Administration climate change regulations remain pending before courts. During the last term of the Obama Administration, the Environmental Protection Agency (EPA) and the National Highway and Traffic Safety Administration finalized a series of regulations to address emissions from cars, trucks, and their engines that may contribute to climate change. In addition, EPA finalized regulations pursuant to its authority under the Clean Air Act (CAA) to reduce GHG emissions from stationary sources such as power plants, GHG-emitting oil and gas sources, and landfills. Various stakeholders have challenged a majority of these rules generally contesting the scope of EPA’s authority and its methods for regulating GHG emissions. In addition to the CAA, other environmental statutes such as the Endangered Species Act and the National Environmental Policy Act require federal agencies to consider climate change in their actions and decisions. The extent to which agencies may consider climate change effects and rely on predictive models, studies, and assumptions, however, has been challenged in court. Federal agencies are also required to consider the cost of GHG emissions in their rulemakings and environmental reviews. As the Trump Administration implements its policies on climate change, stakeholders may sue to ensure compliance with laws and judicial precedent that require consideration of climate change effects or costs. Climate change litigation may potentially increase as some stakeholders seek to reduce GHG emissions and address climate change effects. In the past, plaintiffs have had little success in using federal common law nuisance claims to force private entities to reduce their GHG emissions or pay damages for alleged injuries caused by their emissions. In 2011, the Supreme Court determined that these claims were displaced when Congress granted EPA authority to regulate GHG emissions under the CAA. If Congress amends the CAA to remove EPA’s authority, plaintiffs may seek to reintroduce these common law nuisance claims. However, they will likely face jurisdictional barriers that may be difficult to overcome. Federal courts often do not reach the merits of climate change suits due to threshold procedural and jurisdictional barriers, such as whether a plaintiff or petitioner has the right to bring a lawsuit in the first place or whether the court has jurisdiction over a type of claim. These difficult procedural and jurisdictional barriers are at the center of a recent case claiming that the government has a duty to safeguard certain natural resources for the benefit of the public and that duty compels the government to address climate change. This report will cover a brief history of U.S. climate change regulation; review the different types of regulation and legal actions that have been pursued in the national debate over GHGs; examine selected legal issues and next steps in related litigation; and address what these legal and regulatory developments mean for Congress.

Apr 3, 2017

The Trump Administration’s March 2017 Defense Budget Proposals: Frequently Asked Questions

On March 16, 2017, the Trump Administration released two defense budget proposals—a proposal for national defense (budget function 050) discretionary spending for fiscal year (FY) 2018 as part of the Administration’s Budget Blueprint for federal spending, and a detailed request for additional FY0217 funding for Department of Defense (DOD) military activities. For FY2017, the Administration is seeking $30 billion for DOD military activities (budget subfunction 051) in addition to the amounts requested by the Obama Administration. Of this amount, $24.9 billion is slated for base budget activities and $5.1 billion is associated with OCO. The Budget Blueprint includes a $603 billion request for national defense (budget function 050) discretionary budget authority for FY2018 base budget requirements and $65 billion for Overseas Contingency Operations (OCO). This report addresses several frequently asked questions regarding these proposals.

Apr 3, 2017

S. 488 and H.R. 1343: Encouraging Employee Ownership Act of 2017

This Insight provides background and a policy discussion of the Encouraging Employee Ownership Act of 2017 (S. 488 and H.R. 1343). Introduction To help restore confidence in the securities markets after the stock market crash of 1929, Congress passed the Securities Exchange Act of 1934, which authorized the creation of the Securities and Exchange Commission (SEC). The SEC is an independent, nonpartisan regulatory agency responsible for administering federal securities laws. It has broad regulatory authority over significant parts of the securities industry, including stock exchanges, mutual funds, investment advisers, and brokerage firms. A major statutory mission of the SEC is investor protection, which involves requiring companies who offer securities to the public to disclose meaningful financial and other information about themselves to both existing and potential investors. To that end, under the Securities Act of 1933 (the Securities Act), a company that offers or sells its securities to the public is required to register them with the SEC. This securities registration process requires that the company that is issuing the securities disclose key facts, including a description of the company’s assets and business; a description of the security being offered for sale; information on company management; and financial statements that have been certified by independent accountants. SEC registration can entail significant costs that can arguably be disproportionately burdensome to small and medium-sized businesses and startups. Rule 701 Adopted by the SEC in 1988, Rule 701 of the Securities Act provides an exemption from such registration requirements to non-public companies, including startups that offer their own securities (including stock options and restricted stock) as part of formal written compensation agreements to employees, directors, general partners, trustees, officers, specified advisers, and consultants. Certain conditions must be met for eligibility, chiefly: Total sales of stock to the aforementioned corporate entities during a 12-month period cannot exceed the greater of $1 million, 15% of the issuer’s total assets, or 15% of all the outstanding securities of the class of securities being offered. In addition, during any 12-month period, if the sale of securities, including stock options to the aforementioned corporate personnel, exceeds $5 million, the company must provide the employee/investors with additional information on a recurring basis, including risk factors, copies of the plans under which the offerings are made, and certain financial statements. Small and medium-sized and startup companies often compete for personnel by offering company stock options and stock with their potential for future employee wealth creation. From the perspective of the corporation, there is some research that has linked employee ownership of company stock with increased employee productivity. Some reporting, however, has found that growing numbers of non-public startups have been maintaining their non-public status for longer periods of time as they grow, increasingly bumping up against the $5 million threshold under Rule 701, threatening to trigger the aforementioned disclosure and reporting burdens. S. 488 and H.R. 1343 Intended to reduce the number of companies hitting the $5 million threshold, S. 488, as reported by the Senate Banking, Housing, and Urban Affairs Committee on March 13, 2017, and H.R. 1343, as reported by the House Financial Services Committee on March 29, 2017, would increase the amount of aggregate securities sales to corporate personnel over any 12-month period from $5 million to $10 million before the additional disclosure requirement is triggered. They would also require the SEC to index the new figure for inflation every five years. In the 114th Congress, similar language passed the House in Title I of H.R. 1675. Supportive arguments for the bills often made by the United States Chamber of Commerce, a major business trade group, include that they would (1) encourage more privately held companies to provide company stock to their employees, as many are reportedly wary that rival firms could exploit the information (e.g., trade secrets); and (2) better align the $5 million figure (established in 1999) with its current value after adjusting for inflation. In addition, the generally pro-investor protection North American Securities Administrators, a group of state and provincial securities regulators, testified that legislation similar to S. 488 and H.R. 1343 would not affect “mom and pop” retail investors outside of the companies, since companies with Rule 701 exemptions can only issue stock to company-affiliated personnel. By contrast, critics of the bill have testified that (1) Rule 701 was solely intended for small startups and that by expanding the securities sales cap to $10 million, larger corporate issuers would be included under the rule, enabling them to deny their employee-investors corporate disclosures generally available to other investors; (2) the bills could expand the number of employee-investors subject to the non-disclosure regime, potentially limiting their ability to understand the often risky nature of such stocks, while at times being subject to employer pressure to purchase them; and (3) the legislation could result in more employees having concentrated amounts of employer-only stock, which flies in the face of conventional strategies of portfolio diversification to mitigate investment risk.

Apr 2, 2017

The Federal Coal Leasing Moratorium

The Federal Coal Leasing Moratorium Recent Events The Trump Administration issued an Executive Order on March 28, 2017, that would amend or withdraw Secretarial Order 3338 and lift “any and all” moratoria on federal coal leasing. On January 11, 2017, the Obama Administration published its scoping report (Bureau of Land Management, Federal Coal Program: Programmatic Environmental Impact Statement—Scoping Report, Volumes I and II, January 2017) as a prelude to the comprehensive Draft and Final PEIS. After six public meetings and over 214,000 comments, the BLM concluded that modernizing the federal coal leasing program was necessary. The scoping report is designed to provide an overview of the PEIS process, a summary of public comments, fundamental information on the federal coal leasing program, and potential options for modernization. BLM presented three modernization options centered on four main categories (in alignment with the Secretarial Order): A fair return to the public, climate change and resource protection, the federal leasing system, and community assistance. In addition to the three possible options, the BLM discusses no action and no leasing alternatives. In a separate coal-related announcement (unrelated to the March 28th Executive Order), the coal valuation rules implementation (scheduled for January 2017) was postponed by the Office of Natural Resources Revenue (ONRR) on February 22, 2017. Background On January 16, 2016, President Obama announced the latest moratorium on federal coal leasing. There were two recent moratoriums on federal coal leasing: one from 1971 to 1981 and the second from 1984 to 1987. The purpose of the current moratorium is to examine the federal coal leasing program and to determine whether it needs to be “modernized.” The Secretary directed (Secretarial Order 3338) the Bureau of Land Management (BLM) to prepare a programmatic environmental impact statement (PEIS) of the coal leasing program as the basis for a comprehensive review. The Department of the Interior conducted comprehensive reviews under the two previous moratoriums. Concerns raised by various interest groups include the question of whether the public was getting “fair market value” for the sale of coal leases. There has been little or no competition at most coal lease sales; thus, bonus bids were often at minimum levels. Some argued that the minimum bid levels of $100 per acre and the royalty rate levels (8% on the value of production for underground mines and 12.5% for surface mines) are too low. There have been concerns over lease modifications that could allow coal mining operators to lease adjacent tracts for development without competition. According to the BLM, many of these tracts would otherwise go undeveloped. Another major concern expressed by critics of the program is that the environmental pollution caused by coal’s greenhouse gas emissions conflicted with the Obama Administration’s climate policy. Critics of the moratorium state that there would be major impacts on coal communities, coal markets, and reclamation efforts. There are some exceptions to the “pause,” including (1) if a mine has less than three years of reserves, (2) if a mine could be easily expanded to adjacent sites, (3) for leases that are pending final approvals, and (4) metallurgical coal which is used for making steel. There has been both support and opposition in Congress to the moratorium. Unrelated to the coal leasing moratorium, on July 1, 2016, the DOI (under the Office of Natural Resources Revenue—ONRR) published its final rule regarding federal coal. The final coal valuation rule reaffirms the idea that the value of coal for royalty purposes is near or at the lease (the source of production) and that the gross proceeds from an arms-length transaction best reflect fair market value. There were no changes to the valuation of arms-length sales, but for non-arms-length coal transactions, ONRR eliminated the current benchmarks which include comparable arms-length sales, prices reported for that coal to a public utility commission, prices for that coal reported to EIA spot market prices, or a netback method. Instead, ONRR would value coal on the gross proceeds received from the first arms-length sale minus allowable deductions. U.S. Coal Production, Reserves, and Federal Leasing There are large amounts of federal coal reserves under lease, about 7.75 billion short tons, about 9% of total federally held reserves (listed at about 87 billion short tons, according to the National Mining Association). The federal government is the largest holder of U.S. coal reserves, accounting for about 34% of the total. Federal coal leases accounted for 42% of U.S. coal production in 2015. Coal production has been trending downward over the past seven years (since 2008 when production peaked in the United States at about 1.2 billion short tons). Production fell by 11% in 2015 over 2014, a record single-year decline. The EIA projects declining coal production in 2016 and 2017, using their short-term projection model. Their long-term projections to 2040 show annual coal production roughly flat at about 900 million short tons without clean power plan (CPP) regulations, and less than 600 million tons if the CPP is implemented. Factors contributing to lower coal demand in the United States include low electricity demand, low natural gas prices, coal plant retirements, and environmental policy. The BLM administers coal leasing on all federal lands. All BLM coal leasing is done competitively except in cases where a party holds a “prospecting permit” issued prior to the Federal Coal Leasing Amendments Act of 1976 or where contiguous acres are added to existing leases. Coal leasing (similar to oil and gas leasing) is governed by Section 2 of the Mineral Leasing Act, as amended. There are two processes by which federal lands may be leased for coal production. The first is “regional coal leasing,” in which BLM selects tracts for leasing as needed to meet regional requirements, which are outlined by “regional coal teams” composed of BLM officials and interested state and local parties. The second is leasing on application, whereby mining companies submit an application to lease certain tracts. Nearly all federal coal is leased by application.

Mar 30, 2017

Keystone XL Pipeline: Development Issues

Keystone XL Presidential Permit On March 23, 2017, the U.S. State Department issued a Presidential Permit for the border facilities of the proposed Keystone XL Pipeline, having determined that issuing the permit “would serve the national interest.” If constructed, the pipeline would transport oil sands crude from Canada as well as oil produced in North Dakota and Montana to a hub in Nebraska for further delivery to Gulf Coast refineries (Figure 1). The U.S. pipeline section would be 875 miles long with the capacity to deliver 830,000 barrels per day. Keystone XL requires a Presidential Permit because it would cross an international border. The Keystone XL proposal is motivated by constrained oil pipeline capacity from Canada which has limited access to key U.S. markets and depressed prices realized by oil sands producers. Development of Keystone XL has been controversial, however. Pipeline proponents base their arguments primarily on increasing the supply of oil to the United States from an allied neighboring country and economic benefits, especially jobs. Opponents express concern about greenhouse gas emissions from the development of Canadian oil sands, continued U.S. dependency on fossil fuels, and the environmental risk of an oil release. There is also debate about how much Keystone XL crude oil, or petroleum products refined from it, would be exported overseas. Congress has acted on numerous occasions in the past to influence the approval of the pipeline and continues to be interested in its development. TransCanada, the developer of Keystone XL, has applied for a Presidential Permit three times—initially in 2008 and again in 2012. Both of these applications were denied by the Obama Administration. However, on January 24, 2017, the Trump Administration invited TransCanada to resubmit its 2012 permit application for Keystone XL and directed federal agencies to expedite their review of the application if resubmitted. TransCanada resubmitted its application on January 26, 2017. Prior to issuing the Presidential Permit, the Trump Administration exempted Keystone XL from the scope of a Presidential Memorandum requiring the use of domestically-produced materials for new U.S. pipelines. Figure 1. Proposed Keystone XL Pipeline Route / Source: By CRS using data from Platts, December 2016, Esri Data and Maps 2016, and U.S. Department of State, Final Supplemental Environmental Impact Statement for the Keystone XL Project, January 2014, p. 1.2-3, http://keystonepipeline-xl.state.gov/documents/organization/221145.pdf. Development Issues Construction of the Keystone XL Pipeline is not assured. It faces legal, regulatory, and market challenges related to federal approvals, Nebraska’s permitting process, and the effects of low oil prices and competing pipeline proposals. Federal Approvals Although TransCanada has obtained a Presidential Permit from the State Department, the issuance of that Permit is the subject of a legal challenge on National Environmental Policy Act and Administrative Procedure Act grounds. Keystone XL also requires other federal agency consultations and approvals under various statutes for specific parts of the pipeline. These approvals include permits under the Clean Water Act from the U.S. Army Corps of Engineers (Corps) for construction at regulated water crossings and wetlands as well as rights-of-way granted to cross federal lands (often processed by the Bureau of Land Management (BLM)), among other approvals. In the case of the recently constructed Dakota Access Pipeline, approval to cross Corps-managed land became the focus of litigation, agency reconsideration, and a presidential memorandum. BLM rights of way for Keystone XL are already being challenged preemptively in the litigation cited above regarding the Presidential Permit. If the Corps, BLM, or other federal approvals for Keystone XL face protracted legal challenges or regulatory review, the timing, cost, and route of the pipeline could be affected. State Siting Permits Because oil pipeline siting is not under federal jurisdiction, the Keystone XL Pipeline requires approval from state regulators for the pipeline route through the United States. TransCanada has existing siting approvals from Montana and South Dakota, but must obtain new eminent domain authority from Nebraska due to statutory and regulatory requirements particular to that state. The Nebraska regulatory process—which includes discovery, formal intervention by affected stakeholders, public input, and hearings—will be completed no sooner than September 14, 2017. Issues raised in these proceedings, or potential legal challenges to them, may create delays and uncertainty about Keystone XL’s route through the state. Low Crude Oil Prices The Keystone XL Pipeline was initially proposed when U.S. crude oil prices exceeded $100 per barrel. However, due to global oil market oversupply—including U.S. oil production growth—prices have fallen to around $50 per barrel as of March 2017. This precipitous drop in oil prices has reduced the economic attractiveness of Canadian oil sands crude—which is costly to produce—and lowered its near-term projections for growth. These lowered projections, in turn, have caused some analysts to question the need for—and, therefore, the near-term economic viability of—the Keystone XL Pipeline. Canadian oil producers maintain that additional pipeline capacity will still be needed eventually. TransCanada also has stated that, although it is renegotiating shipper commitments, it expects “sufficient commercial support to underpin the project.” Nonetheless, significant uncertainty remains about future crude oil prices and Keystone XL’s ability to secure enough Canadian oil shipments to justify its construction to investors. Competing Projects in Canada Faced with the past obstacles to the Keystone XL Pipeline and growing U.S. crude production, Canadian developers have been pursuing two major pipelines entirely within Canada to export crude oil out of marine terminals on the Pacific and Atlantic coasts. The Trans Mountain Pipeline Expansion was approved by the Canadian federal government in November 2016, although it still requires additional provincial and First Nations approvals; it also faces legal challenges. TransCanada’s Energy East pipeline would add crude oil export capacity via Canada’s Atlantic Coast, although this project is still under Canadian federal review and faces significant development hurdles due to its route through Quebec and competition with the Trans Mountain expansion. If ultimately constructed, either of these projects could reduce the quantities of crude oil available for shipment on Keystone XL.

Mar 30, 2017

President’s Budget Blueprint Seeks Changes for Public Health Service Agencies

The White House has released a “budget blueprint” that outlines President Trump’s priorities for funding the federal government in FY2018. The document covers only discretionary spending, which is controlled through the annual appropriations process. It does not address mandatory spending—including spending on entitlement programs such as Medicare and Social Security—or interest payments on the federal debt. The complete FY2018 budget is expected to be released in May. Although the budget blueprint provides limited details on the agency, account, or program level, it indicates Trump Administration support for billions of dollars in cuts to government agencies to counterbalance increases in military and national security spending. The blueprint includes several recommendations that would make significant changes to the budget and operations of the Public Health Service (PHS) agencies within the Department of Health and Human Services. Research The budget blueprint proposes reducing National Institutes of Health (NIH) funding for biomedical and behavioral research by $5.8 billion from the annualized FY2017 level to $25.9 billion. While no other details are provided, this would appear to return NIH’s funding in real (i.e., inflation-adjusted) terms to the levels of the late 1990s. The blueprint also calls for a “major reorganization of NIH’s Institutes and Centers to help focus resources on the highest priority research” and “other consolidation and structural changes.” The NIH proposal contrasts with recent legislative actions to increase NIH’s budget after several years of gradually declining funding. Lawmakers increased NIH’s annual appropriation for FY2016 by $2 billion over the FY2015 level. In addition, the newly enacted 21st Century Cures Act established the NIH Innovation Account and authorized annual transfers to the fund over a 10-year period totaling $4.8 billion. Each year, funds in the Innovation Account are available to be appropriated to help support the Precision Medicine Initiative, the BRAIN initiative, cancer research, and the use of adult stem cells in regenerative medicine. The blueprint does not mention these or other specific research areas. The blueprint also proposes consolidating the Agency for Healthcare Research and Quality (AHRQ) within NIH. AHRQ funds—and disseminates the findings of—research to improve the safety, quality, and affordability of health care. Its budget is about 1% of NIH’s budget. Appropriators have recommended eliminating funding for AHRQ, saying that the agency’s work overlaps with research supported by NIH and the Patient-Centered Outcomes Research Trust Fund (PCORTF). Supporters of AHRQ argue that the agency has a distinct mission and that its research portfolio focuses on different questions. AHRQ’s discretionary funding has declined in recent years, though this has been offset by the annual transfer of PCORTF funds to the agency. Each year, AHRQ receives a portion of the PCORTF funding, which it uses to disseminate and implement the findings of comparative clinical effectiveness research funded by the PCORTF. Public Health The budget blueprint proposes a new fund—the Federal Emergency Response Fund—to help the government respond rapidly to disease outbreaks such as Zika and Ebola. Public health officials advocated for such a fund last year during the protracted debate over approving emergency Zika funding. The blueprint does not specify the source of funds, the amounts to become available, or the HHS official(s) responsible for administering the fund. The blueprint says there will be reforms of “key public health, emergency preparedness, and prevention programs,” many of which are administered by the Centers for Disease Control and Prevention (CDC), and a restructuring of “similar HHS preparedness grants to reduce overlap and administrative costs.” No additional details are provided. It also proposes a new $500 million CDC block grant for states to address public health challenges, but it does not specify whether these funds would come from CDC’s existing budget. Medical Product Regulation The Food and Drug Administration (FDA) is funded by a combination of annual appropriations action and user fees, which the agency collects from manufacturers of certain FDA-regulated products. The amount of user fees FDA collects has increased over the past 25 years, both in absolute terms and as a share of its overall budget. User fees now account for 43% of FDA’s funding. The budget blueprint includes a proposal that FDA’s medical product user fees be increased in FY2018 to “over $2 billion” from the current level of about $1.4 billion, and “replac[e] the need for new budget authority to cover pre-market review costs.” Congress is gearing up to consider another five-year reauthorization of FDA’s medical product user fee programs based on new and, in general, larger fee amounts negotiated by FDA and the drug and medical device industries. Any user fee proposal in the budget that goes beyond the amounts that have already been agreed to may require further negotiation with the industry. Health Care Services The budget blueprint supports safety net providers that “deliver critical health care services to low-income and vulnerable populations.” It cites as examples of such programs, the federal health centers program and the Ryan White HIV/AIDS program—both of which are administered by the Health Resources and Services Administration (HRSA)—as well as the Indian Health Service. While the blueprint proposes continued funding for these “highest priority” programs, as well as supporting the National Health Service Corps, it proposes a $403 million cut to HRSA’s health professions and nursing education and training programs. Congress once again is considering extending funding for the ACA’s Community Health Center Fund (CHCF), which gives HRSA additional funds for the health centers program and the NHSC. CHCF funding ends this year under current law. The blueprint includes a “$500 million increase above [FY]2016 enacted levels” for opioid abuse prevention and treatment programs administered by the Substance Abuse and Mental Health Services Administration (SAMHSA). The 21st Century Cures Act authorized $500 million to be appropriated for each of FY2017 and FY2018 for state grants to address the opioid abuse crisis. The second continuing resolution, under which most of the government is currently operating, appropriated $500 million for FY2017 pursuant to this authority. The blueprint proposal does not indicate whether it would be additional funding above this level.

Mar 30, 2017

Overview of CEQ Guidance on Greenhouse Gases and Climate Change

In 1997, the White House Council on Environmental Quality (CEQ) informed federal agencies that, to ensure compliance with the National Environmental Policy Act (NEPA), they may need to consider whether their actions may affect or be affected by climate change. CEQ issued revised draft guidance in 2010 and again in 2014. On August 1, 2016—after receiving public comments and other feedback from Members of Congress, state agencies, tribes, corporations, trade associations, and other stakeholders—CEQ released final guidance (hereinafter, the Guidance) on consideration of greenhouse gas (GHG) emissions and climate change impacts in NEPA reviews. The Guidance was rescinded via an executive order issued by President Trump on March 28, 2017. It is difficult to determine the effect of that rescission. The Guidance was intended to assist federal agencies in determining how and under what circumstances they should consider climate change impacts in their NEPA reviews. The Guidance itself did not establish new requirements. As a result, the rescission may change how agencies identify and consider climate-related impacts, but not necessarily whether they will determine that such analysis must be included in their NEPA reviews. Background Regarding NEPA NEPA requires federal agencies to identify and consider the environmental impacts of their proposed actions and share with the public information about those impacts before making final decisions on those actions. CEQ regulations implementing NEPA, applicable to all federal agencies, establish procedures to ensure compliance with NEPA’s mandates. For example, federal agencies must: prepare a detailed environmental impact statement (EIS) for actions significantly affecting the human environment, or, if impacts are uncertain, they may prepare an environmental assessment (EA) to determine if an EIS is needed; implement a public scoping process to determine the scope of issues to be analyzed; discuss details of the proposal and its reasonable alternatives, including measures to mitigate adverse impacts; and identify direct and indirect environmental effects of the proposal and alternatives, including any cumulative impacts. Federal actions subject to NEPA include approval of site-specific projects to receive federal funding or regulatory approvals or the adoption of official policies, rules, plans, or programs. Each federal agency adopted and supplemented CEQ’s NEPA regulations to reflect their respective decisionmaking authorities. CEQ’s draft guidance in 1997 called on federal agencies to consider climate change impacts in NEPA reviews. It then provided more detail on when and how to do so in its 2010 and 2014 guidance. During the 2000s, when the CEQ guidance remained in draft and courts found that agencies must consider climate-related impacts in their NEPA reviews, federal agencies began to modify their NEPA procedures to do so. Many agencies currently include some level of analysis of climate impacts in their EAs and EISs. Those analyses generally quantify direct GHG emissions from a proposed action and its alternatives. CEQ’s final Guidance built on its past guidance and was intended, in part, to ensure more consistent evaluation of climate change impacts. Key Elements of the Guidance To determine a federal action’s potential to affect climate change, the Guidance recommended that agencies use existing tools to quantify GHG emissions. It also recommended that agencies coordinate with CEQ to identify actions they approve that normally warrant or do not warrant quantification of GHG emissions. Further, the Guidance recommended that agencies consider a proposal’s GHG emissions via the following elements of the NEPA process: Scoping process—Identify the scope broadly enough to ensure that reasonably connected actions affecting GHG emissions are assessed. Alternatives analysis—Identify and consider alternatives that mitigate GHG emissions. Impact analysis—When direct and indirect GHG emissions can be quantified, use those data when analyzing the proposal’s direct and indirect effects. (Those data would also indicate cumulative impacts.) Mitigation measures—Identify verifiable, enforceable activities that could reduce a proposal’s GHG emissions. When data regarding foreseeable impacts of climate change are available, the Guidance also recommended that agencies consider those impacts on the proposal and its impacts on the environment. Such data may be relevant when identifying the environment affected by the proposal. For example, if a project requires water from a local stream, the project’s future operation and its impact on the local community may change if water availability is affected by drought. Further, the Guidance recommended that agencies use information developed during the NEPA review to identify alternatives that would make the action and affected communities more resilient to the effects of climate change. The Guidance noted that implementing its recommendations would not require agencies to develop new NEPA procedures, but it recommended that agencies review and update their procedures as necessary. Further, when it released the guidance, CEQ stated that it anticipated that individual agencies would implement the Guidance in accord with their existing NEPA procedures and policies. CEQ noted that agencies have discretion in how they would tailor their NEPA reviews to accommodate recommendations in the Guidance. Many federal agencies already included some analysis of climate impacts in their respective environmental reviews. Some do so in response to previous judicial action. As a result, it is difficult to determine whether or the degree to which federal agencies currently implement procedures similar to what CEQ recommended. Now that the Guidance has been rescinded, it is uncertain how agencies may respond. As noted, the absence of guidance from CEQ recommending how an agency may quantify and consider GHG emissions does not necessarily mean that agencies will no longer do so, particularly if they are currently performing such analysis as a result of some court directive or according to existing agency-specific regulations.

Mar 30, 2017