CRS Reports

Antitrust Law: An Introduction

May 29, 2019

Legislative Purpose and Adviser Immunity in Congressional Investigations

May 24, 2019

USDA Domestic Food Assistance Programs: FY2019 Appropriations

The Consolidated Appropriations Act, 2019 (P.L. 116-6) was enacted on February 15, 2019. This omnibus bill included appropriations for the U.S. Department of Agriculture (USDA), of which USDA’s domestic food assistance programs are a part. Prior to its enactment, the federal government had continued to operate for the first six months of the fiscal year under continuing resolutions (CRs). This report focuses on the enacted appropriations for USDA’s domestic food assistance programs and, in some instances, policy changes provided by the omnibus law. CRS Report R45230, Agriculture and Related Agencies: FY2019 Appropriations provides an overview of the entire FY2019 Agriculture and Related Agencies portion of the law as well as a review of the reported bills and CRs preceding it. USDA experienced a 35-day lapse in FY2019 funding and partial government shutdown prior to the enactment of P.L. 116-6. Domestic food assistance funding is primarily mandatory but also includes discretionary funding. Most of the programs’ funding is for open-ended, appropriated mandatory spending—that is, terms of the authorizing law require full funding and funding may vary with program participation (and in some cases inflation). The largest mandatory programs include the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp Program) and the child nutrition programs (including the National School Lunch Program and School Breakfast Program). Though their funding levels are dictated by the authorizing law, in most cases, appropriations are needed to make funds available for obligation and expenditure. The three largest discretionary budget items are the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC); the Commodity Supplemental Food Program (CSFP); and federal nutrition program administration. The domestic food assistance funding is, for the most part, administered by USDA’s Food and Nutrition Service (FNS). The enacted FY2019 appropriation provides over $103 billion for domestic food assistance (Table 1). This is a decrease of approximately $1.7 billion from FY2018. Declining participation in SNAP is responsible for most of the difference. Approximately 94% of the FY2018 appropriations for domestic food assistance are for mandatory spending. Highlights of the associated appropriations accounts are summarized below. For SNAP and other programs authorized by the Food and Nutrition Act, such as The Emergency Food Assistance Program (TEFAP) commodities, the FY2019 appropriations law provides approximately $73.5 billion. Certain provisions of the law affect SNAP policies. For example, it continues a policy in the FY2017 and FY2018 appropriations laws that limited USDA’s implementation of December 2016 regulations regarding SNAP retailers’ inventory requirements. USDA must amend its final rule to define “variety” more expansively and must “apply the requirements regarding acceptable varieties and breadth of stock.” For the child nutrition programs (the National School Lunch Program and others), the enacted law provides approximately $23.1 billion. This includes discretionary funding for school meals equipment grants ($30 million) and Summer Electronic Benefit Transfer (EBT) demonstration projects ($28 million), and a general provision that provides an additional $5 million for farm-to-school grants. The law includes policy provisions related to processed poultry from China, requirements for schools’ paid lunch pricing, vegetables in school breakfasts, and the use of commodities in child nutrition programs. For the WIC program, the law provides nearly $6.1 billion while also rescinding $500 million in prior-year carryover funding. The law includes new funding for telehealth grants. For the Commodity Assistance Program account, which includes funding for the Commodity Supplemental Food Program (CSFP), TEFAP administrative and distribution costs, and other programs, the law provides over $322 million. The law increases discretionary funding for TEFAP administrative and distribution costs through the annual appropriation and through a $30 million transfer of prior-year CSFP funds. For Nutrition Programs Administration, the law provides nearly $165 million.

May 24, 2019

2018 Farm Bill Primer: Agricultural Trade and Food Assistance

May 22, 2019

The Federal Tort Claims Act (FTCA): A Legal Overview

A plaintiff injured by a defendant’s wrongful act may file a tort lawsuit to recover money from that defendant. To name a particularly familiar example, a person who negligently causes a vehicular collision may be liable to the victim of that crash. By forcing people who wrongfully injure others to pay money to their victims, the tort system serves at least two functions: (1) deterring people from injuring others and (2) compensating those who are injured. Employees and officers of the federal government occasionally commit torts just like other members of the general public. For a substantial portion of this nation’s history, however, plaintiffs injured by the tortious acts of a federal officer or employee were barred from filing lawsuits against the United States by “sovereign immunity”—a legal doctrine that ordinarily prohibits private citizens from haling a sovereign state into court without its consent. Until the mid-20th century, a tort victim could obtain compensation from the United States only by persuading Congress to pass a private bill compensating him for his loss. Congress, deeming this state of affairs unacceptable, enacted the Federal Tort Claims Act (FTCA), which authorizes plaintiffs to obtain compensation from the United States for the torts of its employees. However, subjecting the federal government to tort liability not only creates a financial cost to the United States, it also creates a risk that government officials may inappropriately base their decisions not on socially desirable policy objectives, but rather on the desire to reduce the government’s exposure to monetary damages. In an attempt to mitigate these potential negative effects of abrogating the government’s immunity from liability and litigation, the FTCA limits the circumstances in which a plaintiff may pursue a tort lawsuit against the United States. For example, the FTCA contains several exceptions that categorically bar plaintiffs from recovering tort damages in certain categories of cases. Federal law also restricts the types and amount of damages a victorious plaintiff may recover in an FTCA suit. Additionally, a plaintiff may not initiate an FTCA lawsuit unless he has timely complied with a series of procedural requirements, such as providing the government an initial opportunity to evaluate the plaintiff’s claim and decide whether to settle it before the case proceeds to federal court. Since Congress first enacted the FTCA, the federal courts have developed a robust body of judicial precedent interpreting the statute’s contours. In recent years, however, the Supreme Court has expressed reluctance to reconsider its long-standing FTCA precedents, thereby leaving the task of further developing the FTCA to Congress. Some Members of Congress have accordingly proposed legislation to modify the FTCA in various respects, such as by broadening the circumstances in which a plaintiff may hold the United States liable for torts committed by government employees.

May 21, 2019

Farm Commodity Provisions in the 2018 Farm Bill (P.L. 115-334)

The farm commodity program provisions in Title I of the Agricultural Improvement Act of 2018 (P.L. 115-334; the 2018 farm bill) include revenue support programs for major program crops and permanent agricultural disaster assistance programs for producers of most tree crops and livestock. Aside from dairy and sugar, which have their own specific programs, most grain and oilseed crops produced in the United States are eligible for two tiers of revenue support under Title I of the 2018 farm bill—specialty crops such as fruits, vegetables, and tree nuts are not covered. The first tier of support is provided by the Marketing Assistance Loan (MAL) program, which offers interim financing for production of “loan” commodities in the form of a nine-month nonrecourse loan at statutorily set prices. A producer must have a harvested crop to offer as collateral for the MAL loan. Nonrecourse means that, if forfeited, USDA must accept the crop pledged as collateral as full payment of an outstanding loan. Thus, the statutory loan rates serve as minimum price guarantees for eligible commodities. The MAL program may be supplemented by a higher, second tier of revenue support comprised of (1) the Price Loss Coverage (PLC) program, which provides price protection at the national level via statutory fixed “reference” prices for eligible crops, or (2) the Agricultural Risk Coverage (ARC) program, which provides revenue protection via historical moving average revenue guarantees based on the five most recent years of national crop prices and county or farm average yields. Participation is free for both ARC and PLC. However, a producer must own or rent historical “base” acres of “covered” commodities. In addition, producers must sign up and elect either PLC or a county-coverage ARC program (ARC-CO) on a crop-by-crop basis or enroll all covered commodities together in a whole-farm revenue guarantee under an individual-coverage ARC program (ARC-IC). The dairy and sugar sectors are supported by separate federal farm programs that are tailored more specifically to the physical differences associated with each of their products—liquid fresh milk and refined sugar—and their respective markets. For dairy, the Dairy Margin Coverage (DMC) program offers producers milk margin protection for a range of margin thresholds—the milk margin equals the difference between the all-milk farm price and the price of a formula-based feed ration—and for a producer-selected portion (ranging from 5% to 95%) of historical milk production. Milk producers must sign up, select both margin and milk production coverage levels, and pay a premium that varies with coverage levels. The U.S. dairy sector also benefits from tariff-rate quotas (TRQs) on selected dairy products. The sugar program provides revenue support through a combination of limits on domestic output sales (marketing allotments), nonrecourse MAL loans for domestic sugar production (but at the processor level), a sugar-to-ethanol backstop program (Feedstock Flexibility Program), and quotas that limit imports. The import quotas for dairy and sugar are authorized outside of the omnibus farm bill. Disaster assistance is available for producers of most tree crops and livestock. The Noninsured Crop Assistance Program (NAP) is available for all agricultural production that is not covered by a federal crop insurance policy. All of these programs have permanent authority. However, the 2018 farm bill amends most of them. The enacted 2018 farm bill continues a $125,000 per-person cap on combined PLC and ARC payments but excludes MAL program benefits from the limit. The limit applies to the total from all covered commodities except peanuts, which has a separate $125,000 limit. To be eligible for payments, persons must be actively engaged in farming (AEF). Payment limits are doubled if the farm operator has a spouse. On family farming operations, all family members 18 years or older are deemed AEF and eligible for payments, including cousins, nephews, and nieces. The 2018 farm bill retains the adjusted gross income (AGI) limit for payment eligibility of $900,000. The Congressional Budget Office (CBO) projects outlays for Title I provisions of the 2018 farm bill for the five-year period (FY2019-FY2023) to average $6.3 billion compared with an estimated $7.2 billion in annual outlays under the 2014 farm bill. Based on projected market-price-to-PLC-reference price ratios, producers are expected to shift their preference toward PLC over ARC under the 2018 farm bill, resulting in a shift in program outlays concentrated more on PLC than ARC.

May 21, 2019

Regulating Drinking Water Contaminants: EPA PFAS Actions

May 21, 2019

Major Agricultural Trade Issues in the 116th Congress

Sales of U.S. agricultural products to foreign markets absorb about one-fifth of U.S. agricultural production, thus contributing significantly to the health of the farm economy. Farm product exports, which totaled $143 billion in FY2018 (see chart below), make up about 9% of total U.S. exports and contribute positively to the U.S. balance of trade. The economic benefits of agricultural exports also extend across rural communities, while overseas farm sales help to buoy a wide array of industries linked to agriculture, including transportation, processing, and farm input suppliers. U.S. Agricultural Trade, FY2013-FY2019 / Source: USDA, Outlook for U.S. Agricultural Trade, AES-107, February 2019. Notes: *denotes forecast. Data is not adjusted for inflation. Congress has traditionally displayed a keen interest in agricultural trade issues given their importance to farmers and ranchers and to the overall economy. A major area of interest for the 116th Congress has been the loss of overseas export market shares for agricultural products due to the direction of the Trump Administration’s trade policy, which places increased emphasis on reducing the overall U.S. trade deficit. In March 2018, the Trump Administration imposed Section 232 tariffs on U.S. imports of steel and aluminum from most countries and additional Section 301 tariffs on a number of imports from China. Following these actions, Canada, China, Mexico, the European Union (EU), and Turkey imposed retaliatory tariffs on more than 800 U.S. agricultural and food product exports. In response, USDA authorized $12 billion in short-term assistance to the affected agricultural producers and commodities under its Market Facilitation Program to help mitigate the economic impact on farmers. A number of policy developments undertaken by the Trump Administration in bilateral and regional trade agreements may affect agricultural markets as well. On the Administration’s initiative, the North American Free Trade Agreement (NAFTA) has been renegotiated and signed as the U.S.-Mexico-Canada Agreement (USMCA). This agreement is subject to legislative ratification by Canada and Mexico and approval by U.S. Congress. President Trump withdrew the United States from the Trans-Pacific Partnership (TPP) in January 2017. In March 2018, the remaining 11 countries concluded a revised version of TPP, the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP). Signatories of CPTPP have begun to reduce tariffs and provide greater agricultural market access for imports from CPTPP signatory countries, actions that could potentially erode U.S. agricultural market shares in the region. At the bilateral level, the Trump Administration has notified Congress of its intent to begin trade negotiations with Japan (a CPTPP member), the EU, and the United Kingdom. At the global level, and at the initiative of the United States, the World Trade Organization (WTO) recently ruled that China has subsidized its agricultural production beyond the level permitted under its WTO obligations and that China’s administration of its agricultural market access policies are inconsistent with its WTO obligations. The United States has also filed a counter notification against India at the WTO stating that India has underreported its agricultural domestic subsidies. Several other agricultural trade issues may be of interest to Congress. For example, the proposed USMCA does not address all the issues that restrict U.S. agricultural exports to Mexico and Canada, and Southeastern U.S. produce growers have been seeking changes to trade remedy laws to address imports of seasonal produce. A key objective of U.S. trade negotiations continues to be the establishment of a common framework for approval, trade, and marketing of the products of agricultural biotechnology. U.S. farm and food interests see the potential for market expansion opportunities in Cuba, but a prohibition on private U.S. financing is generally viewed as a major obstacle to this end. Moreover, the United States has announced its intention to withdraw eligibility for the Generalized System of Preference (GSP)—which provides duty-free tariff treatment for certain products from developing countries—from Turkey and India. On another front, U.S. exports of beef, pork, and chicken continue to face bans and trade restrictions over disease outbreaks even though the bans are inconsistent with international trade protocols, among which are China’s ongoing bans on imports of U.S. beef and poultry and restrictions imposed by several foreign markets on U.S. ractopamine-fed pork.

May 20, 2019

The Highway Funding Formula: History and Current Status

More than 90% of federal highway assistance is distributed to the states by formula. Between 1916, when Congress created the first ongoing program to fund road construction, and 2012, various formula factors specified in law were used to apportion highway funds among the states. After 1982, these factors were partially overridden by provisions to guarantee that each state received federal funding at least equal to a specific percentage of the federal highway taxes its residents paid. Since enactment of the Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141) in 2012, formula factors such as population and highway lane mileage have ceased to have a significant role in determining the distribution of funds. The apportionment among the states under the current surface transportation law, the Fixing America’s Surface Transportation Act (FAST Act; P.L. 114-94), passed in 2015, is not based on any particular policy objectives other than ensuring the stability of states’ shares of total funding based on their shares in the last year of MAP-21, In addition, each state is guaranteed an amount at least equal to 95 cents on the dollar of the taxes paid by its residents into the highway account of the Highway Trust Fund. Some policy-related factors used to distribute highway funds in the past are no longer in use, while other possible factors sometimes mentioned in policy discussions, such as states’ rates of population growth and projected increases in truck traffic, have never been used as formula factors. This report describes mechanism by which Federal-Aid Highway Program funds are distributed today, and includes tables comparing individual states’ shares of the FY2018 apportionment with their shares of some factors relevant to highway needs. Table 5 ranks states’ apportionments based on the apportionment amount per resident, per square mile of land area, per federal-aid highway lane mile, and per million vehicle miles traveled on federal-aid highways.

May 20, 2019

HUD’s Proposal to End Assistance to Mixed Status Families

On May 10, 2019, HUD released a proposed rule to end eligibility for “mixed status” families in its major rental assistance programs (public housing, Section 8 Housing Choice Vouchers, Section 8 project-based rental assistance). “Mixed status” families comprise both citizens (or eligible noncitizens) and ineligible noncitizens. As reported in the press and reflected in analysis by both CRS and the Department of Housing and Urban Development (HUD), the rule would likely result in the displacement from HUD-assisted housing of over 25,000 families, including 55,000 children. Additionally, the rule would establish new documentation requirements for citizens. Treatment of Mixed Status Families Current law—Section 214 of the Housing and Community Development Act of 1980, as amended—prohibits the provision of certain housing assistance benefits to ineligible noncitizens (generally, persons in the country illegally; or persons legally present but in a temporary status, such as tourists or students). The law does not directly address how the prohibition should be applied in the case of mixed status families. It took HUD more than a decade to finalize its interpretation and implementation of this law, in part due to a series of statutory changes related to the categories of eligible and ineligible noncitizens, as well as congressional directives suspending HUD’s implementation of various proposed rules. The final regulations implementing Section 214 address the issue of mixed status families by requiring the proration—or proportional reduction—of assistance provided to these families. Other social programs that provide benefits to families and households (Temporary Assistance for Needy Families (TANF) and the Supplemental Nutrition Assistance Program (SNAP)) also pay reduced benefits to mixed status families. Under HUD’s 2019 proposed rule, mixed status families would be ineligible for assistance. The only exception would be for certain households that were receiving assistance on the date the existing regulations took effect (June 19, 1995). All other mixed status households currently being served will either have to remove ineligible household members in order to continue to receive assistance (an unavailable option for families with ineligible adults but eligible children); or to move to unassisted housing, either voluntarily or by formal eviction. Program administrators would be permitted to continue assistance for mixed status families for 6 to18 months while they seek new housing. No future mixed status families would be eligible for assistance. HUD contends that this policy change is consistent with various Executive Orders promulgated by President Trump. Data According to HUD administrative data from December 2017 (as published in the economic analysis accompanying the rule and analyzed by CRS) the affected programs served more than 25,000 mixed status families, consisting of more than 108,000 people. More than three-quarters of these households were families with children, primarily households containing eligible children and ineligible adult members. This includes roughly 55,000 children who are U.S. citizens or have eligible immigration status. Mixed status families make up a relatively small share of the overall assistance caseload nationally, accounting for approximately 0.5% of all assisted households. However, mixed status families make up a more significant caseload share for some Public Housing Authorities (PHAs) administering public housing and/or the Section 8 Housing Choice Voucher program. Based on CRS analysis of HUD administrative data, mixed status families account for 10% or more of the caseload for approximately 40 PHAs, in some cases accounting for more than one-third of all families served by a PHA. Geographically, the largest numbers of mixed status families are in California, Texas, and New York. HUD’s economic analysis found the proposed rule would increase subsidy costs by roughly $200 million per year, as mixed status families receiving a reduced, prorated benefit would be replaced by families receiving full benefits drawn from waiting lists for assistance. However, in a limited funding environment, this would likely result in fewer families being served or a decrease in the quality of the housing provided. Additionally, turnover in housing programs can be costly for program administrators. These costs can include the court-related expenses related to formal evictions, cleaning and repairs to prepare a unit for new occupants, and/or the costs of processing new applicants for assistance. HUD notes that the administrative costs of turnover associated with the proposed rule may be sizeable. HUD estimates the mixed status families being displaced will bear moving costs of approximately $500 each; HUD notes some families may face homelessness as a result of the rule change, but the agency does not quantify that impact, other than noting that researchers estimate that the costs of homelessness borne by society can exceed $20,000 per homeless person annually. Documentation Requirements for Citizens Under current HUD regulations, each member of a family receiving housing assistance must provide (1) a signed declaration of citizenship, signed under penalty of perjury; (2) a signed declaration of eligible immigration status, signed under penalty of perjury, along with appropriate verification documentation; or (3) an election not to contend to have eligible immigration status, thus making the family a mixed status family subject to prorated benefits. The proposed rule would make changes to the first option by creating a federal requirement for documentation of citizenship. Currently, program administrators may, but are not required to, request citizenship documentation of applicants. Under the proposed rule, all current and future citizen beneficiaries will have to provide proof of citizenship, such as a birth certificate, passport, or other documentation deemed acceptable by HUD, as established in future guidance. The vast majority of the roughly 9.6 million people receiving assistance under the Section 214-covered programs are citizens who would be subject to this requirement. A 2007 GAO report assessed the implications of citizenship documentation requirements added to the Medicaid program and found that such requirements appeared to increase administrative costs of the program and served as a barrier to program enrollment or result in loss of benefits for otherwise eligible citizens. However, the potential administrative or other program costs of the policy change are not contemplated in HUD’s economic analysis of the proposed rule.

May 17, 2019

Drug Pricing and the Law: Pharmaceutical Patent Disputes

May 17, 2019

Drug Pricing and the Law: Regulatory Exclusivities

May 17, 2019

Federal Preemption in the Dual Banking System: An Overview and Issues for the 116th Congress

Banks play a critical role in the United States economy, channeling money from savers to borrowers and facilitating productive investment. While the nature of lawmakers’ interest in bank regulation has shifted over time, most bank regulations fall into one of three general categories. First, banks must abide by a variety of safety-and-soundness requirements designed to minimize the risk of their failure and maintain macroeconomic stability. Second, banks must comply with consumer protection rules intended to deter abusive practices and provide consumers with complete information about financial products and services. Third, banks are subject to various reporting, recordkeeping, and anti-money laundering requirements designed to assist law enforcement in investigating criminal activity. The substantive content of these requirements remains the subject of intense debate. However, the division of regulatory authority over banks between the federal government and the states plays a key role in shaping that content. In some cases, federal law displaces (or “preempts”) state bank regulations. In other cases, states are permitted to supplement federal regulations with different, sometimes stricter requirements. Because of its substantive implications, federal preemption has recently become a flashpoint in debates surrounding bank regulation. In the American “dual banking system,” banks can apply for a national charter from the Office of the Comptroller of the Currency (OCC) or a state charter from a state’s banking authority. A bank’s choice of chartering authority is also a choice of primary regulator, as the OCC serves as the primary regulator of national banks and state regulatory agencies serve as the primary regulators of state-chartered banks. However, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) also play an important role in bank regulation. The Federal Reserve supervises all national banks and state-chartered banks that become members of the Federal Reserve System (FRS), while the FDIC supervises all state banks that do not become members of the FRS. This complex regulatory architecture has resulted in a “symbiotic system” with both federal regulation of state banks and state regulation of national banks. In the modern dual banking system, national banks are often subject to generally applicable state laws, and state banks are subject to both generally applicable federal laws and regulations imposed by their federal regulators. The evolution of this system during the 20th century caused the regulation of national banks and state banks to converge in a number of important ways. However, despite this convergence, federal preemption provides national banks with certain unique advantages. In Barnett Bank of Marion County, N.A. v. Nelson, the Supreme Court held that the National Bank Act (NBA) preempts state laws that “significantly interfere” with the powers of national banks. The Court has also issued two decisions on the preemptive scope of a provision of the NBA limiting states’ “visitorial powers” over national banks. Finally, OCC rules have taken a broad view of the preemptive effects of the NBA, limiting the ways in which states can regulate national banks. Courts, regulators, and legislators have recently confronted a number of issues involving banking preemption and related federalism questions. Specifically, Congress has considered legislation that would overturn a line of judicial decisions concerning the circumstances in which non-banks can benefit from federal preemption of state usury laws. The OCC has also announced its intention to grant national bank charters to certain financial technology (FinTech) companies—a decision that is currently being litigated. Finally, Congress has recently turned its attention to the banking industry’s response to state efforts to legalize and regulate marijuana.

May 17, 2019

Fiscal Policy: Economic Effects

Fiscal policy is the means by which the government adjusts its spending and revenue to influence the broader economy. By adjusting its level of spending and tax revenue, the government can affect the economy by either increasing or decreasing economic activity in the short term. For example, when the government runs a budget deficit, it is said to be engaging in fiscal stimulus, spurring economic activity, and when the government runs a budget surplus, it is said to be engaging in a fiscal contraction, slowing economic activity. The government can use fiscal stimulus to spur economic activity by increasing government spending, decreasing tax revenue, or a combination of the two. Increasing government spending tends to encourage economic activity either directly through purchasing additional goods and services from the private sector or indirectly by transferring funds to individuals who may then spend that money. Decreasing tax revenue tends to encourage economic activity indirectly by increasing individuals’ disposable income, which tends to lead to those individuals consuming more goods and services. This sort of expansionary fiscal policy can be beneficial when the economy is in recession, as it lessens the negative impacts of a recession, such as elevated unemployment and stagnant wages. However, expansionary fiscal policy can result in rising interest rates, growing trade deficits, and accelerating inflation, particularly if applied during healthy economic expansions. These side effects from expansionary fiscal policy tend to partly offset its stimulative effects. The government can use contractionary fiscal policy to slow economic activity by decreasing government spending, increasing tax revenue, or a combination of the two. Decreasing government spending tends to slow economic activity as the government purchases fewer goods and services from the private sector. Increasing tax revenue tends to slow economic activity by decreasing individuals’ disposable income, likely causing them to decrease spending on goods and services. As the economy exits a recession and begins to grow at a healthy pace, policymakers may choose to reduce fiscal stimulus to avoid some of the negative consequences of expansionary fiscal policy, such as rising interest rates, growing trade deficits, and accelerating inflation, or to manage the level of public debt. In recent history, the federal government has generally followed a pattern of increasing fiscal stimulus during a recession, then decreasing fiscal stimulus during the economic recovery. Prior to the “Great Recession” of 2007-2009 the federal budget deficit was about 1% of gross domestic product (GDP) in 2007. During the recession, the budget deficit grew to nearly 10% of GDP in part due to additional fiscal stimulus applied to the economy. The budget deficit began shrinking in 2010, falling to about 2% of GDP by 2015. In contrast to the typical pattern of fiscal policy, the budget deficit began growing again in 2016, rising to nearly 4% of GDP in 2018 despite relatively strong economic conditions. This change in fiscal policy is notable, as expanding fiscal stimulus when the economy is not depressed can result in rising interest rates, a growing trade deficit, and accelerating inflation. As of publication of this report, interest rates have not risen discernibly and are still near historic lows, and inflation rates show no sign of acceleration. The trade deficit has been growing in recent years; however, it is not clear that this growth in the trade deficit is a result of increased fiscal stimulus.

May 16, 2019

Proposed U.S.-EU Trade Agreement Negotiations

May 15, 2019

FY2020 LHHS Appropriations: Status

Congress recently began consideration of the FY2020 appropriations bill for the Departments of Labor, Health and Human Services, and Education, and Related Agencies (LHHS). The LHHS bill is the largest ($1.06 trillion in FY2019) of the 12 annual appropriations bills, when accounting for both mandatory and discretionary funding. On May 8, 2019, the House Appropriations Committee marked up the FY2020 LHHS bill at their first full committee markup of the year. (See the draft bill and draft committee report considered at the markup. The draft report includes a detailed table summarizing proposed funding for agencies, accounts, and programs across the bill.) At the markup, the committee ordered the bill reported by a vote of 30-23. The full committee markup followed subcommittee approval of the bill, by voice vote, on April 30. Senate Appropriations Committee action for FY2020 has yet to occur. Scope of the Bill The LHHS bill provides annually appropriated budget authority for the Department of Labor, the majority of the Department of Health and Human Services (except for the Food and Drug Administration, the Indian Health Service, and the Agency for Toxic Substances and Disease Registry, which are funded in other appropriations bills), the Department of Education, and more than a dozen related agencies, including the Social Security Administration and the Corporation for National and Community Service. In general, mandatory funding represents just over 80% of the total LHHS bill, supporting annually appropriated entitlements, such as Medicaid and Supplemental Security Income. Discretionary funds account for less than 20% of total funds in the bill, but tend to receive the most attention throughout the LHHS appropriations process. This is because the appropriations process generally has little control over the amounts provided for appropriated entitlements; rather, the authorizing statute controls the program parameters (e.g., eligibility rules, benefit levels) that entitle certain recipients to payments. While discretionary appropriations represent a relatively small share of the entire LHHS bill, the bill itself is typically the largest single source of nondefense discretionary funding for the federal government. (The Department of Defense bill is the largest single source of discretionary funding overall.) Context for FY2020 Appropriations Under the congressional budget process, the start of annual appropriations decision-making traditionally is preceded by the submission of the President’s budget request and the adoption of the congressional budget resolution. Both of those steps were delayed or have not yet occurred for FY2020. The President’s budget submission for FY2020 was submitted on March 11, 2019, about five weeks after the statutory deadline. The delay was, in part, attributable to protracted negotiations over a number of the FY2019 annual appropriations bills (not including LHHS), during which there was a five-week government shutdown. Ultimately, appropriations for these annual bills were enacted on February 15, 2019 (almost five months after the start of the fiscal year). The annual adoption of a congressional budget resolution by its target date of April 15 is meant to provide an opportunity for Congress to consider and subsequently execute an overall budget framework. For FY2020, the House and Senate have not yet agreed to a budget resolution. In the absence of agreement on a budget resolution, on April 9, 2019, the House passed a deeming resolution for FY2020 (H.Res. 293) which gave the House Appropriations Committees a spending allocation of approximately $1.295 trillion for FY2020. This is about $177 billion (+16%) more than the combined FY2020 statutory discretionary spending limits for defense and nondefense spending under the Budget Control Act (BCA), as amended. The BCA limits come to $1.118 trillion, with $576 billion allocated to defense spending and $542 billion allocated to nondefense spending. Because the House allocation of $1.295 trillion exceeds amounts available under the statutory discretionary spending limits and because the Senate has not agreed to the same allocation, complications may arise as the House and Senate seek to resolve their differences on appropriations legislation. FY2020 LHHS Discretionary Funding On May 8, the same day as the full committee LHHS markup, the House Appropriations Committee adopted FY2020 discretionary suballocations for each of the 12 appropriations bills by a vote of 30-22. (These are sometimes also referred to as “302(b) suballocations.”) The Senate Appropriations Committee has not released any guidance as to how it intends to allocate discretionary funding among the 12 bills. Table 1 displays the FY2020 House discretionary suballocation for LHHS, along with the comparable FY2019 LHHS funding level. Relative to FY2019, the House committee allocation would increase FY2020 discretionary funding for LHHS by about $11.8 billion (+7%). Table 1. FY2020 LHHS Discretionary Suballocations with FY2019 Comparable Budget Authority in Billions of Dollars FY2019 Comparable FY2020 House Suballocation FY2020 Senate Suballocation $178.076 $189.876 TBD Source: Table prepared by the Congressional Research Service (CRS). The FY2019 comparable amount is the discretionary appropriations for LHHS, as scored by the Congressional Budget Office. The FY2020 House suballocation is as posted on the committee website in advance of the LHHS markup on May, 8, 2019. Notes: TBD = To Be Determined. Amounts in this table reflect current-year discretionary budget authority subject to spending limits. These amounts exclude discretionary funds for which special rules apply with regard to the spending limits, including certain funds for program integrity activities. In addition, this table does not reflect funds provided under certain authorities in the 21st Century Cures Act (P.L. 114-255) that are effectively exempt from the spending limits. Additional Resources For more information on the status of FY2020 appropriations as a whole, see the CRS Appropriations Status Table. CRS reports addressing key funding questions for the programs and agencies funded by the LHHS appropriations bill are available on the CRS website. For assistance with the LHHS bill, please reach out to the relevant CRS expert.

May 13, 2019

The Potential Decline of Cash Usage and Related Implications

Electronic forms of payment have become increasingly available, convenient, and cost efficient due to technological advances in digitization and data processing. Anecdotal reporting and certain analyses suggest that businesses and consumers are increasingly eschewing cash payments in favor of electronic payment methods. Such trends have led analysts and policymakers to examine the possibility that the use and acceptance of cash will significantly decline in coming years and to consider the effects of such an evolution. Cash is still a common and widely accepted payment system in the United States. Cash’s advantages include its simplicity and robustness as a payment system that requires no ancillary technologies. In addition, it provides privacy in transactions and protection from cyber threats or financial institution failures. However, using cash involves costs to businesses and consumers who pay fees to obtain, manage, and protect cash and exposes its users to loss through misplacement, theft, or accidental destruction of physical currency. Cash also concurrently generates government revenues through “profits” earned by producing it and by acting as interest-free liabilities to the Federal Reserve (in contrast to reserve balances on which the Federal Reserve pays interest), while reducing government revenues by facilitating some tax avoidance. The relative advantages and costs of various payment methods will largely determine whether and to what degree electronic payment systems will displace cash. Traditional noncash payment systems (such as credit and debit cards and interbank clearing systems) involving intermediaries such as banks and central banks address some of the shortcomings of cash payments. These systems can execute payments over physical distance, allow businesses and consumers to avoid some of the costs and risks of using cash, and are run by generally trusted and closely regulated intermediaries. However, the maintenance and operation of legacy noncash systems involve their own costs, and the intermediaries charge fees to recoup those costs and earn profits. The time it takes to finalize certain transactions—including crediting customer accounts for check or electronic deposits—can lead to consumers incurring additional costs. In addition, these systems involve cybersecurity risks and generally require customers to divulge their private personal information to gain system access, which raises privacy concerns. To date, the migration away from cash has largely been in favor of traditional noncash payment systems; however, some observers predict new alternative systems will play a larger role in the future. Such alternative systems aim to address some of the inefficiencies and risks of traditional noncash systems, but face obstacles to achieving that aim and involve costs of their own. Private systems using distributed ledger technology, such as cryptocurrencies, may not serve the main functions of money well and face challenges to widespread acceptance and technological scalability. These systems also raise concerns among certain observers related to whether these systems could facilitate crime, provide inadequate protections to consumers, and may adversely affect governments’ ability to implement or transmit monetary policy. The potential for increased payment efficiency from these systems is promising enough that certain central banks have investigated the possibility of issuing government-backed, electronic-only currencies—called central bank digital currencies (CBDCs)—in such a way that the benefits of certain alternative payment systems could be realized with appropriately mitigated risk. How CBDCs would be created and function are still matters of speculation at this time, and the possibility of their introduction raises questions about the appropriate role of a central bank in the financial system and the economy. If the relative benefits and costs of cash and the various other payment methods evolve in such a way that cash is significantly displaced as a commonly accepted form of payment, that evolution could have a number of effects, both positive and negative, on the economy and society. Proponents of reducing cash usage (or even eliminating it all together and becoming a cashless society) argue that doing so will generate important benefits, including potentially improved efficiency of the payment system, a reduction of crime, and less constrained monetary policy. Proponents of maintaining cash as a payment option argue that significant reductions in cash usage and acceptance would further marginalize people with limited access to the financial system, increase the financial system’s vulnerability to cyberattack, and reduce personal privacy. Based on their assessment of the magnitude of these benefits and costs and the likelihood that market forces will displace cash as a payment system, policymakers may choose to encourage or discourage this trend.

May 10, 2019

The Director of National Intelligence (DNI)

May 10, 2019

Federal Research and Development (R&D) Funding: FY2020

President Trump’s budget request for FY2020 includes approximately $134.1 billion for research and development (R&D). Several FY2019 appropriations bills had not been enacted at the time the President’s FY2020 budget was prepared; therefore, the President’s budget included the FY2018 actual funding levels, 2019 annualized continuing resolution (CR) levels, and the FY2020 request levels. On February 15, 2019, Congress enacted the Consolidated Appropriations Act, 2019 (P.L. 116-6). This act included each of the remaining appropriations acts, completing the FY2019 appropriations process. The act also rendered the CR levels identified in the budget no longer relevant, though for some agencies the exact amount of R&D funding in the act remained uncertain. The analysis of government-wide R&D funding in this report compares the President’s request for FY2020 to the FY2018 level. For agencies for which the FY2019 R&D funding levels are known, individual agency analyses in this report compare the FY2020 request to FY2019 enacted levels. For agencies for which the FY2019 R&D funding levels remain unknown, individual agency analyses in this report compare the FY2020 request to FY2018 actual levels; when the FY2019 levels become available, these sections will be updated to compare the FY2020 request to FY2019 enacted amounts. As of the date of this report, the House had not completed action on any of the 12 regular appropriations bills for FY2020; nor had the Senate. In FY2018, OMB adopted a change to the definition of development, applying a more narrow treatment it describes as “experimental development.” This change was intended to harmonize the reporting of U.S. R&D funding data with the approach used by other nations. The new definition is used in this report. Under the new definition of R&D (applied to both FY2018 and FY2020 figures), President Trump is requesting approximately $134.1 billion for R&D for FY2020, a decrease of $1.7 billion (1.2%) from the FY2018 level. Adjusted for inflation, the President’s FY2020 R&D request represents a decrease of 5.1% below the FY2018 level. Funding for R&D is concentrated in a few departments and agencies. In FY2018, eight federal agencies received 96.3% of total federal R&D funding, with the Department of Defense (DOD, 38.6%) and the Department of Health and Human Services (HHS, 27.2%) combined accounting for nearly two-thirds of all federal R&D funding. The same eight agencies account for 97.2% of the FY2020 request, with DOD accounting for 44.3% and HHS for 25.1% Under the President’s FY2020 budget request, most federal agencies would see their R&D funding decline. The primary exception is the Department of Defense. DOD’s requested R&D funding for FY2020 is $7.1 billion (13.5%) above the FY2018 level. The Departments of Transportation and Veterans Affairs would see small increases in R&D funding. Among the agencies with the largest proposed reductions in R&D funding in the FY2020 budget compared to the FY2018 actual levels are the Department of Energy ($2.8 billion, 15.8%), the National Science Foundation ($567 million, 9.0%), and National Aeronautics and Space Administration ($475 million, 4.0%). The President’s FY2020 budget request would reduce funding for basic research by $1.5 billion (4.0%), applied research by $4.3 billion (10.5%), and facilities and equipment by $0.5 billion (12.8%), while increasing funding for development by $4.5 billion (8.3%). President Trump’s FY2020 budget is largely silent on funding levels for multiagency R&D initiatives. However, some activities supporting these initiatives are discussed in agency budget justifications and are reported in the agency analyses in this report. The request represents the President’s R&D priorities. Congress may opt to agree with none, part, or all of the request, and it may express different priorities through the appropriations process. In recent years, Congress has completed the annual appropriations process after the start of the fiscal year. Completing the process after the start of the fiscal year and the accompanying use of continuing resolutions can affect agencies’ execution of their R&D budgets, including the delay or cancellation of planned R&D activities and the acquisition of R&D-related equipment.

May 9, 2019

Proposed Civilian Personnel System Supporting “Space Force”

May 7, 2019

Enhanced Prudential Regulation of Large Banks

The 2007-2009 financial crisis highlighted the problem of “too big to fail” financial institutions—the concept that the failure of large financial firms could trigger financial instability, which in several cases prompted extraordinary federal assistance to prevent their failure. One pillar of the 2010 Dodd-Frank Act’s (P.L. 111-203) response to addressing financial stability and ending too big to fail is a new enhanced prudential regulatory (EPR) regime that applies to large banks and to nonbank financial institutions designated by the Financial Stability Oversight Council (FSOC) as systemically important financial institutions (SIFIs). Previously, FSOC had designated four nonbank SIFIs for enhanced prudential regulation, but all four have since been de-designated. Under this regime, the Federal Reserve (Fed) is required to apply a number of safety and soundness requirements to large banks that are more stringent than those applied to smaller banks. These requirements are intended to mitigate systemic risk posed by large banks Stress tests and capital planning ensure banks hold enough capital to survive a crisis. Living wills provide a plan to safely wind down a failing bank. Liquidity requirements ensure that banks are sufficiently liquid if they lose access to funding markets. Counterparty limits restrict the bank’s exposure to counterparty default. Risk management requires publicly traded companies to have risk committees on their boards and banks to have chief risk officers. Financial stability requirements provide for regulatory interventions that can be taken only if a bank poses a threat to financial stability. Capital requirements under Basel III, an international agreement, require large banks hold more capital than other banks to potentially absorb unforeseen losses. The Dodd-Frank Act automatically subjected all bank holding companies and foreign banks with more than $50 billion in assets to enhanced prudential regulation. In 2017, the Economic Growth, Regulatory Relief, and Consumer Protection Act (P.L. 115-174) created a more “tiered” and “tailored” EPR regime for banks. It automatically exempted domestic banks with assets between $50 billion and $100 billion (five at present) from enhanced regulation. The Fed has discretion to apply most individual enhanced prudential provisions to the 11 domestic banks with between $100 billion and $250 billion in assets on a case-by-case basis if it would promote financial stability or the institutions’ safety and soundness, and has proposed exempting them from several EPR requirements. The eight domestic banks that have been designated as Global-Systemically Important Banks (G-SIBs) and the five banks with more than $250 billion in assets or $75 billion in cross-jurisdictional activity remain subject to all Dodd-Frank EPR requirements. In addition, the Fed has proposed applying some EPR requirements on a progressively tiered basis to the 23 foreign banks with over $50 billion in U.S. assets and $250 billion in global assets. P.L. 115-174 also reduced the amount of capital that custody banks are required to hold against one of the EPR capital requirements, the supplementary leverage ratio (SLR). In addition, the Fed has issued a proposed rule that would reduce the amount of capital that G-SIBs are required to hold against the SLR. Finally, the Fed has proposed another rule that would combine capital planning under the stress tests with overall capital requirements for large banks. Collectively, these proposed changes would reduce, to varying degrees, capital and other advanced EPR requirements for banks with more than $50 billion in assets. In the view of the banking regulators and the supporters of P.L. 115-174, these changes better tailor EPR to match the risks posed by large banks. Opponents are concerned that the additional systemic and prudential risks posed by these changes outweigh the benefits to society of reduced regulatory burden, believing that the benefits will mainly accrue to the affected banks.

May 6, 2019

Postsecondary Education of Native Americans

May 3, 2019

Administration Proposal to Reorganize the U.S. Office of Personnel Management (OPM)

The U.S Office of Personnel Management (OPM), the federal government’s central personnel agency, is an independent establishment in the executive branch. Created by the Civil Service Reform Act of 1978, the agency’s statutory authority is codified in 5 U.S.C. Chapter 11. In June 2018, President Donald Trump issued reorganization recommendations that included a proposal to transfer several OPM functions to the Executive Office of the President (EOP) and the General Services Administration (GSA). The President’s FY2020 budget restated the reorganization proposal, including that the entire agency would be reorganized. Government Reorganization Authority Reorganizations that exceed the boundaries of one agency, or that are inconsistent with existing law, are generally accomplished through the legislative process. In some cases, Congress has changed the organization of an agency by shifting funding and functions between offices. Where statutes vest functions in the President, they may be delegated and redelegated. In general, agency heads have discretion, consistent with existing statutes, to organize and manage the day-to-day operations of their organizations. These authorities do not, however, supersede or conflict with specific statutory directives, limitations, or organizational arrangements. According to the budget proposal, “the Administration has been developing plans to execute transfers of OPM functions to GSA and the Department of Defense using a combination of existing legal authority and legislation” since June 2018. Principal OPM program offices that are proposed to be reorganized are briefly discussed below. Employee Services (ES) OPM Employee Services provides “policy direction and leadership in designing, developing, and implementing Government-wide human resources systems and programs.” The EOP’s FY2020 Congressional Budget Submission proposed that a new office be established in the Office of Management and Budget to “provide Government-wide strategic direction on federal human capital policy, and coordinate personnel policies, regulations and procedures for Executive agencies, in conjunction with the Office of Personnel Management vested within” the GSA. The budget requested $400,000 and three full-time equivalent employees to establish the office. Merit System Accountability and Compliance (MSAC) OPM Merit System Accountability and Compliance ensures that “Federal agency human resources programs are effective and meet merit system principles and related civil service requirements.” The GSA and OPM Congressional Justification proposed the merger of this function with GSA “upon enactment of authorizing legislation during FY2020.” The budget requested $16,457,000 for MSAC. Human Resources Solutions (HRS) OPM Human Resources Solutions provides a variety of HR products and services to agencies on a reimbursable basis to help them perform their core functions. HRS manages USAJOBS and other information technology systems that automate HR processes. Notably, HRS and GSA currently partner to administer the Human Capital and Training Solutions contracts, which provide customized training and development, human capital strategy, and organizational performance services. HRS is financed by OPM’s revolving fund. HRS was identified as the first program office that would transition to GSA as part of the proposed reorganization in a July 2018 congressional hearing. GSA issued a sources sought notice in August 2018 to identify potential contractors to assist with the transition. Since then, few details have been provided on the HRS transition. The budget proposals from the President and GSA and OPM mention that the transition is underway but do not discuss its status, cost, or organizational and policy implications. In February 2019, Congress directed OPM to provide quarterly updates on the status of the HRS transition and a report outlining the budgetary implications of and existing legal authority for the transfer. Retirement Services (RS) OPM Retirement Services determines eligibility and administers benefits for almost 2.6 million federal retirees and their survivors under the Civil Service Retirement System (CSRS) and the Federal Employees’ Retirement System (FERS). These pension systems cover the majority of the civilian federal workforce. Both CSRS and FERS include retirement, disability, and survivor components. CSRS and FERS benefits are financed through a dedicated federal trust fund, the Civil Service Retirement and Disability Fund. Under the Administration’s plan to reorganize OPM, the current RS functions would be merged into the GSA. Additionally, the budget proposed changes to OPM-administered federal retirement benefits, including increases to employee contributions, elimination and/or reduction in the cost-of-living-adjustments for different federal retirement benefits, elimination of a retirement supplement for certain qualifying former employees, and a change in the measure of pay used in the retirement benefit calculation (from “high-3” to “high-5”). Healthcare and Insurance (H&I) OPM Healthcare and Insurance administers insurance and benefit programs for federal employees, retirees, and their families. These programs are the Federal Employees Health Benefits Program, the Federal Employees’ Group Life Insurance Program, the Federal Long Term Care Insurance Program, the Federal Flexible Spending Account Program, and the Federal Employees Dental and Vision Insurance Program. H&I coordinates and administers the annual Federal Benefits Open Season, during which current participants can enroll or change their enrollment in the programs mentioned above, and “performs operational, analytical, and systems support; policy development and implementation; actuarial analysis; and stakeholder outreach and education for each” program. The GSA and OPM Congressional Justification proposed to transfer the “transactional and consultative services” within H&I to GSA and stated that the reorganization would be completed by September 30, 2020, through “legislation and a request for direct appropriation to cover transition costs.” Office of Inspector General (OIG) The OPM Office of the Inspector General is an independent, nonpartisan entity that is intended to prevent and detect waste, fraud, and abuse at the agency. Under the Inspector General Act of 1978, as amended, the OIG conducts audits, investigations, and other evaluations of programs and operations and makes recommendations to improve them. The Administration’s budget proposed transferring the OIG to the GSA OIG—a recommendation that was not included in the June 2018 reform plan. The GSA and OPM Congressional Justification requested $1 million to cover anticipated costs associated with the transfer. It stated that the transfer is “contingent upon enactment of authorizing legislation” but anticipates that the GSA OIG will oversee “human resources operations functions” currently performed by OPM in FY2019.

May 1, 2019

Base Closure and Realignment (BRAC): Background and Issues for Congress

Since 1977, statutory thresholds have effectively constrained the President’s ability to close or realign major military installations in the United States. Congress has instead periodically granted temporary authorities—known as a Base Realignment and Closure (BRAC)—that have established independent commissions for the review and approval of basing changes submitted by the Secretary of Defense. These unique and transient authorities last expired on April 16, 2006. There have been five rounds of base closures: 1988, 1991, 1993, 1995, and 2005. Though Congress has periodically adjusted the BRAC process to account for lessons learned, the modern framework has remained generally consistent with earlier rounds, and includes establishment of an independent commission; reliance on objective and uniform criteria; Government Accountability Office (GAO) review and certification of Department of Defense (DOD) data; deliberations designed to be transparent that include open hearings, solicitation of feedback, installation visits, and data available for public review; and requirement that the final list of closure and realignment recommendations be accepted or rejected in their entirety. Congress has defined BRAC selection criteria in statute, thus requiring the Secretary to prioritize military value over cost savings. Additionally, Congress has required the Secretary to align the Department’s recommendations with a comprehensive 20-year force structure plan. The commission may modify, reject, or add recommendations during its review before forwarding a final list to the President. After receiving the Commission’s list of recommendations, the President may either accept the report in its entirety or seek to modify it by indicating disapproval and returning it to the commission for further evaluation. If the President accepts the commission’s recommendations, they are forwarded to Congress. BRAC implementation begins by default unless Congress rejects the recommendations in their entirety within 45 days by enacting a joint resolution. During the implementation phase, DOD is required to initiate closures and realignments within two years and complete all actions within six years. The BRAC process represents a legislative compromise between the executive and legislative branches wherein each shares power in managing the closure and realignment of military bases. The imposition of an independent, third-party mediator was intended to insulate base closings from political considerations by both branches that had complicated similar actions in the past. This report provides background on the development of BRAC, describes its major elements and milestones, and outlines issues frequently cited in the context of new rounds, such as potential savings.

Apr 25, 2019

Financial Innovation: Reducing Fintech Regulatory Uncertainty

Apr 25, 2019

Community Disaster Loans: Homeland Security Issues in the 116th Congress

/ The Community Disaster Loan (CDL) program was developed to help local governments manage tax and other revenue shortages following a disaster. Administered by the Federal Emergency Management Agency (FEMA), CDLs provide financial liquidity to local governments through a structured loan that may be converted to grants when certain financial conditions are met. CDLs are codified in Section 417 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. §5184, as amended). Modified “non-traditional” CDL programs were developed in response to Hurricanes Rita and Katrina in 2005, and CDL-type programs for Puerto Rico and the U.S. Virgin Islands (USVI) were developed following 2017’s Hurricanes Harvey, Irma, and Maria. This Insight provides an overview of traditional and non-traditional CDLs and the policy issues they may raise in the 116th Congress, particularly with regard to CDL-type instruments developed for Puerto Rico and USVI. The CDL program may be of interest to Congress given observed increases in frequency and severity of disaster events and apparent congressional interest in oversight issues related to federal disaster response in Puerto Rico and USVI. Overview of Traditional CDLs CDLs were first authorized in the Disaster Relief Act of 1974 (P.L. 93-288) but are defined and established in the Stafford Act (which amended the Disaster Relief Act) to help local governments manage acute tax and other revenue loss after a disaster, which could inhibit their ability to adequately serve their communities during recovery. To qualify for a traditional CDL, an applicant must be located in a presidentially declared disaster area; show substantial loss (greater than 5%) of tax and other revenues; not be in arrears on any other previous CDL loans; and be permitted to take federal loans under their respective state law. CDLs are statutorily capped at $5 million (P.L. 106-390); and are structured around underwriting criteria that account for estimated revenue losses, the local government’s annual operating budget, and a disaster’s economic effects. CDLs are five-year loans, extendable to 10 years at FEMA’s discretion (44 C.F.R §206.367(c)), with interest rates determined by the Treasury Secretary. FEMA also issues guidance on how a CDL can be canceled, which involves submitting evidence of disaster-related operating deficits and associated revenue analyses to FEMA. Overview of Non-Traditional CDLs In special circumstances, Congress has authorized FEMA to administer non-traditional CDLs and CDL-type programs with different eligibility and technical requirements. Unlike traditional CDLs, these loans are not subject to the $5 million cap, and eligible areas are more geographically concentrated. For example, as part of the federal response to extensive economic damage caused by Hurricanes Katrina and Rita, Congress passed legislation in 2005 (P.L. 109-88) and 2006 (P.L. 109-234) to make approximately $1 billion available to support nearly $1.4 billion of non-traditional CDLs. While these non-traditional CDLs initially prohibited cancelation, subsequent 2007 legislation (P.L. 110-28) mandated that cancelation be allowed. CDL-Type Program in Puerto Rico and USVI Following Hurricanes Harvey, Irma, and Maria, Congress passed legislation (P.L. 115-72) providing funding for CDL-type loan instruments for Puerto Rico and USVI. This was not the first time territories received CDLs, with USVI receiving nearly $180 million in CDL funding after Hurricanes Hugo (1989) and Marilyn (1995) prior to the $5 million cap’s enactment. However, while the 2017 loan instruments were based on CDLs defined in the Stafford Act, and appropriations were made to the same fund drawn for CDLs, the resulting program was functionally different due to significant exceptions and modifications, including: Territorial governments were considered municipalities for the purposes of the program; The $5 million cap was lifted; Loan recipients were allowed to receive more than one loan; Loans could only be canceled at the discretion of the Secretary of Homeland Security in consultation with the Secretary of the Treasury; and The Secretary of Homeland Security, in consultation with the Secretary of the Treasury, solely determined the “terms, conditions, eligible uses, and timing and amount” of such loans. The CDL-type instrument’s statutory ambiguities related to loan cancelation and terms were further complicated by Puerto Rico’s broader fiscal crisis and the existence of a federal oversight board, as established by the Puerto Rico Oversight, Management, and Economic Stability Act of 2016 (PROMESA; P.L. 114-187; see CRS Report R44532, The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA; H.R. 5278, S. 2328), coordinated by D. Andrew Austin). Subsequent legislation in February 2018 (P.L. 115-123) required the Puerto Rican government to establish oversight board-approved recovery plans with monthly reports as a requirement for the CDL-type loan disbursement. Given this CDL-type instrument’s statutory ambiguities, the constitutional limitations of territories, and the extent of disaster across the entirety of both territories, the CDL-type program raises potential questions of equity compared to federal disaster response to states, such as in the aftermath of Hurricanes Katrina and Rita, where CDL-type disaster assistance was more comprehensive and less restricted. Potential Policy Issues for Congress Should the rate and severity of disaster-related damages continue along recent trends or accelerate, traditional CDLs or their non-traditional analogues may be increasingly utilized for disaster response or recovery purposes. However, due to their relatively low funding cap and specialized nature, traditional CDLs may be inadequately suited to widespread and severe disaster events. However, non-traditional CDLs or CDL-type instruments may lack sufficiently defined disbursement and cancelation criteria, which potentially contribute to concerns over equity and utility. With respect to Puerto Rico and USVI, Congress may seek to specify program terms and cancelation criteria to bring these instruments more in line with traditional CDLs, or the types used following Hurricanes Katrina and Rita. Considering the CDL program in broader terms, Congress may consider structuring CDLs more expansively to account for a wider universe of disaster and emergency scenarios, such as state- or executive agency-based disaster declarations, expanding or lifting the $5 million cap, or simplifying the loan forgiveness process. One potential alternative would be to restructure CDLs with automatic forgiveness thresholds based on predetermined triggering criteria. Congress could also develop disaster assistance instruments that separately address immediate governmental liquidity, disaster response, and long-term recovery needs.

Apr 24, 2019

Iran Oil Sanctions Exceptions Ended

Overview On April 22, 2019, the State Department announced that exceptions granted to eight countries enabling them to buy Iranian oil without U.S. penalty would not be renewed when they expire on May 2, 2019. The announcement stated that the global oil market is sufficiently well supplied to permit the move, which “aims to bring Iran’s oil exports to zero, denying the regime its principal source of revenue.” The decision has raised speculation over how effective it will be in reducing Iran’s oil exports, how Iran will react, and potential effects on the global oil market—issues that might potentially be considered in evaluating legislation, including Iran sanctions legislation, in the 116th Congress. Legislative Basis The State Department announcement represents a decision under Section 1245 of the FY2012 National Defense Authorization Act (NDAA; P.L. 112-81). That law requires the President to prevent a foreign bank from opening or maintaining an account in the United States if that bank is determined to have conducted a “significant financial transaction” with Iran’s Central Bank or with any sanctioned Iranian bank. Iran’s Central Bank maintains or controls accounts abroad for the primary purpose of receiving payments for Iranian oil and other goods that are considered a national resource. The FY2012 NDAA provision provides an incentive for Iran’s oil buyers to cut purchases of Iranian oil by providing for an exception for the banks of any country determined to have “significantly reduced” its purchases of oil from Iran. The exception, called a “Significant Reduction Exception” (SRE), allows the banks of countries granted the SRE to conduct all transactions with the Central Bank (not just for oil) or with any sanctioned Iranian bank. The SRE is reviewed every 180 days, and, to maintain the SRE, countries are required to reduce their oil buys from Iran by approximately 20% relative to the previous period. Implementation The Obama and Trump Administrations have implemented the FY2012 NDAA with an eye toward balancing the stability of the global oil market with the intended effects on Iran’s economy and behavior. During 2012, the Obama Administration granted SREs to 20 countries, and the incentive succeeded in reducing Iran’s oil exports from about 2.5 million barrels per day (mbd) to about 1.1 mbd by the end of 2013. Of that amount, almost all was exported to six major customers: the European Union (mainly Greece, Italy, and Spain), China, India, Turkey, Japan, and South Korea, with smaller amounts exported to other buyers mainly in East Asia. In January 2016, in concert with the implementation of the 2015 multilateral nuclear deal with Iran, President Obama waived the NDAA provision, thus suspending the requirement of Iran’s oil customers to reduce their purchases to avoid sanctions. As a result, most buyers resumed purchasing oil from Iran at levels prior to the enactment of the law, and Iran’s exports quickly returned to the 2.5 mbd level. On November 5, 2018 the FY2012 NDAA provision went back into full effect as a consequence of President Trump’s decision in May 2018 to withdraw the United States from the Iran nuclear accord. However, Administration officials said at that time that they would evaluate new requests for SREs based on country-specific circumstances and the need for global oil market stability. On November 5, 2018, eight countries received SREs: China, India, Italy, Greece, Japan, South Korea, Taiwan, and Turkey. Yet the requirement that countries continue to reduce purchases from Iran caused Iran’s oil sales to fall to about 1.1 mbd as of the end of March 2019. Of the eight, Taiwan, Greece, and Italy had ceased importing Iranian oil in late 2018. With the SREs set to expire on May 2, 2019, some of Iran’s oil customers indicated an expectation of receiving an SRE for another 180-day period. However, the Administration decided to apply additional pressure on Iran’s economy, perhaps assisted by commitments from Saudi Arabia, the United Arab Emirates, and other suppliers to ensure that “global oil markets remain adequately supplied.” Responses of Key Iran Oil Customers Whether the ending of the SREs achieves the stated goal of reducing Iran’s oil exports to zero depends on the behavior of Iran’s key customers. Some buyers might attempt to bypass U.S. penalties by forging an arrangement that trades Iranian oil for goods of equivalent value. Others might process payments through banks that do not operate in the United States. Some countries might try to link the imposition of actual penalties to their broader relationship with the United States. Officials from China, the largest buyer of Iranian oil, have expressed defiance of the U.S. move, indicating they will continue to buy oil from Iran. Turkey’s leaders have strongly criticized the U.S. decision and indicated Turkey might continue to buy Iranian oil. Indian officials said they would arrange alternate supplies. Japan and South Korea historically have strictly complied with U.S. sanctions and may find alternate supplies of oil and condensate—an ultra-light oil feedstock on which South Korea’s petrochemical industry depends. Iran’s Reaction and Possible Responses Coming only two weeks after the United States designated the Islamic Revolutionary Guard Corps (IRGC) as a foreign terrorist organization (FTO), the SRE decision has further aggravated tensions with Iran. Immediately after the SRE announcement, the head of the IRGC Navy, Rear Admiral Alireza Tangsiri, reiterated a previous threat to close the strategic Strait of Hormuz, through which a third of the world’s seaborne oil passes, if the end of the SRE allowances causes Iran to be “banned from using [the Strait].” This latest Administration move might strengthen Iran’s hardliners in the internal Iranian debate over whether to abrogate the 2015 multilateral nuclear deal on the grounds that it no longer provides the promised economic benefits. Iran’s reaction to the Administration decision might affect congressional consideration of Iran sanctions legislation introduced in the 116th Congress.

Apr 24, 2019

Tax Depreciation of Qualified Improvement Property: Current Status and Legislative History

Apr 24, 2019

Assessing Commercial Disclosure Requirements under the First Amendment

Federal law contains a wide variety of disclosure requirements, including food labels, securities registrations, and disclosures about prescription drugs in direct-to-consumer advertising. These disclosure provisions require commercial actors to make statements that they otherwise might not, compelling speech and implicating the Free Speech Clause of the First Amendment. Nonetheless, while commercial disclosure requirements may regulate protected speech, that fact in and of itself does not render such provisions unconstitutional. The Supreme Court has historically allowed greater regulation of commercial speech than of other types of speech. Since at least the mid-1970s, however, the Supreme Court has been increasingly protective of commercial speech. This trend, along with other developments in First Amendment law, has led some commentators to question whether the Supreme Court might apply a stricter test in assessing commercial disclosure requirements in the near future. Nonetheless, governing Supreme Court precedent provides that disclosure requirements generally receive lesser judicial scrutiny when they compel only commercial speech, as opposed to noncommercial speech. In National Institute of Family and Life Advocates v. Becerra, a decision released in June 2018, the Supreme Court explained that it has applied a lower level of scrutiny to compelled disclosures under two circumstances. First, the Supreme Court has sometimes upheld laws that regulate commercial speech if the speech regulation is part of a larger regulatory scheme that is focused on conduct and only incidentally burdens speech. If a law is properly characterized as a regulation of conduct, rather than speech, then it may be subject to rational basis review, a deferential standard that asks only whether the regulation is a rational way to address the problem. However, it can be difficult to distinguish speech from conduct, and the Supreme Court has not frequently invoked this doctrine to uphold laws against First Amendment challenges. Second, the Supreme Court has sometimes applied a lower level of scrutiny to certain commercial disclosure requirements under the authority of a 1985 case, Zauderer v. Office of Disciplinary Counsel. In Zauderer, the Court upheld a disclosure requirement after noting that the challenged provision compelled only “factual and uncontroversial information about the terms under which . . . services will be available.” The Court said that under the circumstances, the service provider’s First Amendment rights were sufficiently protected because the disclosure requirement was “reasonably related” to the government’s interest “in preventing deception of consumers.” Lower courts have generally interpreted Zauderer to mean that if a commercial disclosure provision requires only “factual and uncontroversial information” about the goods or services being offered, it should be analyzed under rational basis review. If a commercial disclosure requirement does not qualify for review under Zauderer, then it will most likely be analyzed under the intermediate standard that generally applies to government actions that regulate commercial speech. Some legal scholars have argued that recent Supreme Court case law suggests the Court may subject commercial disclosure provisions to stricter scrutiny in the future, either by limiting the factual circumstances under which these two doctrines apply or by creating express exceptions to these doctrines. If a court applies a heightened level of scrutiny, it may require the government to present more evidence of the problem it is seeking to remedy and stronger justifications for choosing a disclosure requirement to achieve its purposes.

Apr 23, 2019

National Oceanic and Atmospheric Administration (NOAA): FY2020 Budget Request and Appropriations

Apr 22, 2019

Overview of FY2020 Appropriations for Commerce, Justice, Science, and Related Agencies (CJS)

This report describes actions taken by the Trump Administration and Congress to provide FY2020 appropriations for Commerce, Justice, Science, and Related Agencies (CJS) accounts. The annual CJS appropriations act provides funding for the Department of Commerce, which includes agencies such as the Census Bureau, the U.S. Patent and Trademark Office (USPTO), the National Oceanic and Atmospheric Administration (NOAA), and the National Institute of Standards and Technology (NIST); the Department of Justice (DOJ), which includes agencies such as the Federal Bureau of Investigation (FBI), the Bureau of Prisons (BOP), the U.S. Marshals, the Drug Enforcement Administration (DEA), and the U.S. Attorneys; the National Aeronautics and Space Administration (NASA); the National Science Foundation (NSF); and several related agencies such as the Legal Services Corporation and the Equal Employment Opportunity Commission. The Administration requests $71.388 billion for CJS for FY2020, which is $1.520 billion (-2.1%) less than the $72.908 billion appropriated for CJS for FY2019. The Administration’s request includes $12.214 billion for the Department of Commerce, $30.529 billion for the Department of Justice, $28.092 billion for the science agencies, and $552 million for the related agencies. The Administration’s FY2020 budget proposes eliminating several CJS agencies and programs, including the Economic Development Administration, the Community Oriented Policing Services Office, NASA’s STEM Engagement Office (formerly the Office of Education), and the Legal Services Corporation. The Administration proposes reducing funding for many accounts in CJS, though there are a few exceptions—the most notable of which is the proposed $2.334 billion increase for the Census Bureau’s Periodic Censuses and Programs account. The increased funding is requested to help the Census Bureau conduct the decennial 2020 Census.

Apr 22, 2019

No Oil Producing and Exporting Cartels (NOPEC) Act of 2019

Apr 22, 2019

Army Corps of Engineers: Environmental Infrastructure (EI) Assistance

Apr 19, 2019

What You Don’t Know Can’t Hurt You: Supreme Court to Address Knowledge Requirement for Firearm Offenses

Apr 19, 2019

Advanced Nuclear Reactors: Technology Overview and Current Issues

All nuclear power in the United States is generated by light water reactors (LWRs), which were commercialized in the 1950s and early 1960s and are now used throughout most of the world. LWRs are cooled by ordinary (“light”) water, which also slows (“moderates”) the neutrons that maintain the nuclear fission chain reaction. High construction costs of large conventional LWRs, concerns about safety raised by the 2011 Fukushima nuclear disaster in Japan, and other issues have led to increased interest in unconventional, or “advanced,” nuclear technologies that could be less expensive and safer than existing LWRs. An “advanced nuclear reactor” is defined in legislation enacted in 2018 as “a nuclear fission reactor with significant improvements over the most recent generation of nuclear fission reactors” or a reactor using nuclear fusion (P.L. 115-248). Such reactors include LWR designs that are far smaller than existing reactors, as well as concepts that would use different moderators, coolants, and types of fuel. Many of these advanced designs are considered to be small modular reactors (SMRs), which the Department of Energy (DOE) defines as reactors with electric generating capacity of 300 megawatts and below, in contrast to an average of about 1,000 megawatts for existing commercial reactors. Advanced reactors are often referred to as “Generation IV” nuclear technologies, with existing commercial reactors constituting “Generation III” or, for the most recently constructed reactors, “Generation III+.” Major categories of advanced reactors include advanced water-cooled reactors, which would make safety, efficiency, and other improvements over existing commercial reactors; gas-cooled reactors, which could use graphite as a neutron moderator or have no moderator; liquid-metal-cooled reactors, which would be cooled by liquid sodium or other metals and have no moderator; molten salt reactors, which would use liquid fuel; and fusion reactors, which would release energy through the combination of light atomic nuclei rather than the splitting (fission) of heavy nuclei such as uranium. Most of these concepts have been studied since the dawn of the nuclear age, but relatively few, such as sodium-cooled reactors, have advanced to commercial scale demonstration, and such demonstrations in the United States took place decades ago. The 115th Congress enacted two bills to promote the development of advanced nuclear reactors. The first, the Nuclear Energy Innovation Capabilities Act of 2017 (NEICA), was signed into law in September 2018 (P.L. 115-248). It requires DOE to develop a versatile fast neutron test reactor that could help develop fuels and materials for advanced reactors and authorizes DOE national laboratories and other sites to host reactor testing and demonstration projects “to be proposed and funded, in whole or in part, by the private sector.” The second, the Nuclear Energy Innovation and Modernization Act (NEIMA, P.L. 115-439), signed in January 2019, would require the Nuclear Regulatory Commission to develop an optional regulatory framework suitable for advanced nuclear technologies. The 115th Congress also appropriated $65 million for R&D to support development of the versatile test reactor in the Energy and Water Development Appropriations Act, FY2019, along with funding for ongoing advanced nuclear research and development programs (Division A of P.L. 115-244). Continued debate over advanced reactor issues is anticipated in the 116th Congress. A fundamental question may be the role of the federal government in advanced nuclear power development. DOE’s budget request for FY2020 focuses the federal role on “early stage research” rather than the more expensive stages of demonstration and commercialization. Controversy is also likely to continue over the need for advanced nuclear power. Supporters contend that such technology will be crucial in reducing emissions of greenhouse gases and bringing carbon-free power to the majority of the world that currently has little access to electricity. However, some observers and interest groups have cast doubt on the potential safety, affordability, and sustainability of advanced reactors. Because many of these technologies are in the conceptual or design phases, the potential advantages of these systems have not yet been established on a commercial scale. Concern has also been raised about the weapons-proliferation risks posed by the potential use of plutonium-based fuel by some advanced reactor technologies. Other current issues related to advanced reactors include criteria for hosting private-sector demonstration reactors at DOE sites, the licensing framework for non-LWR reactors, longer time periods for federal agreements to purchase power from advanced reactors, and the supply of the high-assay low enriched uranium fuel that would be needed for some advanced reactor designs. There also may be congressional interest about potential federal assistance for demonstration reactors, which are expected to cost billions of dollars apiece. Major options for such assistance include federal cost sharing, loan guarantees, power purchase agreements, purchase of reactor capacity for research uses, and tax credits.

Apr 18, 2019

Agricultural Conservation in the 2018 Farm Bill

The Agriculture Improvement Act of 2018 (2018 farm bill, P.L. 115-334, Title II) included a number of changes to agricultural conservation programs, including reauthorizing and amending existing programs, directing existing program activities to specific resource concerns, shifting funds within the title, and authorizing a budget-neutral level of funding. Debate over the conservation title in the 2018 farm bill focused on a number of issues in the different versions in the House- and Senate-passed bills (H.R. 2). These differences were resolved in a House-Senate conference to create the enacted bill, which is a mix of both versions that were passed by both chambers. The enacted bill reauthorizes and amends portions of most all conservation programs; however, the general focus is on the larger programs, namely the Conservation Reserve Program (CRP), Environmental Quality Incentives Program (EQIP), and Conservation Stewardship Program (CSP). Most farm bill conservation programs are authorized to receive mandatory funding and are not subject to appropriation. According to the Congressional Budget Office (CBO), the conservation title of the 2018 farm bill makes up 7% of the bill’s total projected mandatory spending over 10 years, which is $60 billion of the total $867 billion. The conservation title is budget neutral over the 10-year baseline; however, the 2018 farm bill is projected to increase funding in the first five years (+$555 million over FY2019-FY2023) and decrease funding in the last five years (-$561 million over FY2024-FY2028). Generally, the 2018 farm bill reallocates mandatory funding within the conservation title among the larger programs. The two largest working lands programs—EQIP and CSP—were reauthorized and amended under the enacted bill, but in different ways. The House-passed bill would have repealed CSP and created a stewardship contract within EQIP, whereas the Senate-passed bill would have reauthorized CSP and reduced program enrollment. The enacted bill creates a mix of both the House- and Senate-passed bills by reauthorizing CSP and reducing program enrollment, as well as creating a new incentive contract within EQIP. Funding for CSP is shifted away from an acreage limitation under prior law to limits based on funding. EQIP is expanded and reauthorized with increased funding levels. The largest land retirement program—CRP—is reauthorized and expanded by increasing the CRP enrollment limit in annual increments from 24 million acres in FY2019 to 27 million by FY2023. To offset this increased enrollment level, the enacted bill reduces payments to participants, including cost-share payments, annual rental payments, and incentive payments. The 2018 farm bill also reauthorized and amended the Agricultural Conservation Easement Program (ACEP). Most of the changes to ACEP focus on the agricultural land easements by providing additional flexibilities to ACEP-eligible entities and authorize an increase in overall funding. The Regional Conservation Partnership Program (RCPP) is reauthorized and amended by shifting the program away from enrolling land through existing conservation programs to a standalone program with separate contracts and agreements. Under the revised program, USDA is to continue to enter into agreements with eligible partners, and these partners are to continue to define the scope and location of a project, provide a portion of the project cost, and work with eligible landowners to enroll in RCPP contracts. While the 2018 farm bill does not create new conservation programs, it does require that a number of existing programs direct a dollar amount or percentage of a program’s funding to a resource-specific issue, initiative, or subprogram. Through these directed policies Congress has established a level of support, or required investment, to be carried out through implementation to target specific issues such as nutrient runoff or groundwater protection. The directed policy may also reduce the implementing agency’s flexibility to allocate funding based on need, as well as reducing the amount available for activities under the larger program that may not meet a resource-specific provision. High commodity prices in years past, changing land rental rates, and new conservation technologies have led over time to a shift in farm bill conservation policy away from programs that retire land from production (CRP) toward programs that provide assistance to lands still in production (EQIP and CSP). Much of this shift occurred following the 2008 farm bill (FY2009-FY2013) and continued under the 2014 farm bill (FY2014-FY2018) as the level of total mandatory program funding for CRP was reduced relative to EQIP and CSP. Funding for easement programs (ACEP) also declined somewhat under the 2014 farm bill, but is projected to level off under the 2018 farm bill. Partnership program (RCPP) funding has also increased in recent farm bills, but remains relatively small compared to the other categories of programs.

Apr 18, 2019

Tax Equity Financing: An Introduction and Policy Considerations

This report provides an introduction to the general tax equity financing mechanism. The term tax equity investment describes transactions that pair the tax credits or other tax benefits generated by a qualifying physical investment with the capital financing associated with that investment. These transactions involve one party agreeing to assign the rights to claim the tax credits to another party in exchange for an equity investment (i.e., cash financing). The exchange is sometimes referred to as “monetizing,” “selling,” or “trading” the tax credits. Importantly, however, the “sale” of federal tax credits usually occurs within a partnership or contractual agreement that legally binds the two parties. Three categories of tax credits that either currently use or have recently used this mechanism are presented in this report to help explain the structure and function of tax equity arrangements. These include the low-income housing tax credit (LIHTC); the new markets tax credit (NMTC); and two energy-related tax credits—the renewable electricity production tax credit (PTC) and energy investment tax credit (ITC). While these credits all use the tax equity financing mechanism, no two credits do so in the same manner. The economic rationale for subsidizing the activities targeted by these tax credits is not evaluated. Instead, this report focuses on explaining the structure and functioning of tax equity arrangements, analyzing the delivery of federal financial support using this mechanism, and discussing various policy options related to tax credits that rely on tax equity. Four policy options are presented to help Congress should it consider modifications to an existing tax equity program, or create a new one. The options are with respect to the general tax equity approach and include making the credits refundable, converting the credits to grants, allowing for the direct transfer of credits, and accelerating the credit claim periods. This list of options is not exhaustive. Due to important differences in the underlying structure of various current or future credits, some options may be better suited for particular credits than others. Careful consideration on a case-by-case basis is part of evaluating the appropriateness of each option. Consideration of various options might ask whether the use of tax equity markets is an efficient and effective means of delivering federal financial support. At first glance, it may appear that the government would get more “bang for its buck” by delivering subsidies more directly, without a role for tax equity markets. However, such a conclusion overlooks one role that tax equity investors play in some industries in addition to providing financing: they evaluate the quality of projects before investing, as well as provide continuing oversight and compliance monitoring. Effectively, the tax equity mechanism outsources a portion of the oversight and compliance monitoring to investors in exchange for a financial return. On the one hand, there may be value to the federal government in being able to rely on outside investors to provide oversight and monitoring. On the other hand, for some tax equity programs that have a government entity overseeing participant compliance, the monitor role of investors may be redundant. There also may be ways to improve the current delivery approach.

Apr 17, 2019

U.S. Farm Income Outlook for 2019

This report uses the U.S. Department of Agriculture’s (USDA) farm income projections (as of March 6, 2019) and agricultural trade outlook update (as of February 21, 2019) to describe the U.S. farm economic outlook. According to USDA’s Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—is forecast at $69.4 billion in 2019, up $6.3 billion (+10%) from last year. The forecast rise in 2019 net farm income is the result of an increase in gross returns (up $8.5 billion or +2%)—including continued payments under the trade aid package announced by USDA in July 2018—partially offset by slightly higher production expenses (up $2.2 billion or +0.6%). Net farm income is calculated on an accrual basis. Net cash income (calculated on a cash-flow basis) is also projected higher in 2019 (+4.7%) to $95.7 billion. The 2019 net farm income forecast is substantially below (-18%) the 10-year average of $84.8 billion (in nominal dollars)—primarily the result of the outlook for continued weak prices for most major crops. Commodity prices are under pressure from a record soybean and near-record corn harvest in 2018, diminished export prospects due to an ongoing trade dispute with China, and burdensome stocks. Government payments are projected down nearly 17% from 2018 at $11.5 billion—due largely to lower market facilitation payments by USDA. Market facilitation payments to qualifying agricultural producers—in response to the U.S.-China trade dispute—were an estimated $5.2 billion in 2018 and are projected at $3.5 billion in 2019. Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) payments are also projected lower in 2019 ($1.7 billion) versus 2018 ($3.0 billion). Payments to dairy producers under the new Dairy Margin Coverage (DMC) program are projected up over 200% at $600 million, while payments under conservation and disaster assistance are projected up in 2019 at $4.3 billion (+8.6%) and $1.4 billion (+20%). Since 2008, U.S. agricultural exports have accounted for a 20% share of U.S. farm and manufactured or processed agricultural sales. In 2018 total agricultural exports were estimated up 2% at $143.4 billion. However, abundant supplies in international markets, strong competition from major foreign competitors, and the ongoing U.S.-China trade dispute are expected to shift trade patterns and lower U.S. export prospects slightly (-1%) in 2019. In addition to the outlook for slightly higher farm income, farm asset value is also projected up 1.5% from 2018 to $3.1 trillion. However, aggregate farm debt is projected record large at $426.7 billion—up 3.9% from 2018. Farm asset values reflect farm investors’ and lenders’ expectations about long-term profitability of farm sector investments. USDA farmland values are projected to rise 1.8% in 2019, similar to the increases of 1.9% in 2018 and 2.3% in 2017. Because they comprise such a significant portion of the U.S. farm sector’s asset base (83%), change in farmland values is a critical barometer of the farm sector’s financial performance. At the farm household level, average farm household incomes have been well above average U.S. household incomes since the late 1990s. However, that advantage has narrowed in recent years. In 2014, the average farm household income (including off-farm income sources) was about 77% higher than the average U.S. household income. In 2017 (the last year with comparable data), that advantage is expected to decline to 32%. The outlook for below average net farm income and relatively weak prices for most major program crops signals the likelihood of continued relatively lean times ahead. The U.S. agricultural sector’s well-being remains dependent on continued growth in domestic and foreign demand to sustain prices at current modest levels. In addition to commodity prices, the financial picture for the agricultural sector as a whole heading into 2019 will hinge on both domestic and international macroeconomic factors, including interest rates, economic growth, and consumer demand.

Apr 16, 2019

Title IX and Sexual Harassment: Private Rights of Action, Administrative Enforcement, and Proposed Regulations

Title IX of the Education Amendments of 1972 (Title IX) provides an avenue of legal relief for victims of sexual abuse and harassment at educational institutions. It bars discrimination “on the basis of sex” in an educational program or activity receiving federal funding. Although Title IX makes no explicit reference to sexual harassment or abuse, the Supreme Court and federal agencies have determined that such conduct can sometimes constitute discrimination in violation of the statute; educational institutions in some circumstances can be held responsible when a teacher sexually harasses a student or when one student harasses another. Title IX is mainly enforced (1) through private rights of action brought directly against schools by or on behalf of students subjected to sexual misconduct; and (2) by federal agencies that provide funding to educational programs. To establish liability in a private right of action, a party seeking damages for a Title IX violation must satisfy the standards set forth by the Supreme Court in Gebser v. Lago Vista Independent School District, decided in 1998, and Davis Next Friend LaShonda D. v. Monroe County Board of Education, decided the next year. Gebser provides that when a teacher commits harassment against a student, a school district is liable only when it has actual knowledge of allegations by an “appropriate person,” and so deficiently responds to those allegations that its response amounts to deliberate indifference to the discrimination. Davis instructs that, besides showing actual knowledge by an appropriate person and deliberate indifference, a plaintiff suing for damages for sexual harassment committed by a student must show that the conduct was “so severe, pervasive, and objectively offensive” that it denied the victim equal access to educational opportunities or benefits. Taken together, the Supreme Court’s decisions set forth a high threshold for a private party seeking damages against an educational institution based on its response to sexual harassment. In turn, federal appellate courts have differed in how to apply the standards set in Gebser and Davis, diverging on the nature and amount of evidence sufficient to support a claim. In each of the last several presidential administrations, the Department of Education (ED) issued a number of guidance documents that instruct schools on their responsibilities under Title IX when addressing allegations of sexual harassment. These documents—while sometimes subject to change—generally reflected a different standard than the Supreme Court case law addressing private rights of action for damages for sexual abuse or harassment (the Court in Davis acknowledged that the threshold for liability in a private right of action could be higher than the standard imposed in the administrative enforcement context). Those guidance documents had, among other things, established that sometimes a school could be held responsible for instances of sexual harassment by a teacher, irrespective of actual notice; and schools could be held responsible for student-on-student harassment if a “responsible employee” knew or should have known of the harassment (constructive notice). ED’s previous guidance also instructed educational institutions that they sometimes could be responsible for responding to incidents of sexual harassment occurring off campus. ED also cautioned schools on the use of mediation to resolve allegations of sexual harassment. With regard to the procedures used by schools to resolve sexual harassment allegations, ED informed schools that they must use the preponderance of the evidence standard to establish culpability, and the agency strongly discouraged schools from allowing parties in a hearing to personally cross-examine one another. In response to guidance from ED, as well as increased oversight from the department’s Office for Civil Rights (OCR) between 2011 and 2016, schools developed several procedures to ensure that their responses to allegations of sexual harassment and assault complied with Title IX. A number of students faced with disciplinary action by public universities raised constitutional challenges to the Title IX procedures used to find them responsible for sexual misconduct, arguing that universities violated the Due Process Clause in handling their case. ED issued a notice of proposed rulemaking in late 2018, after revoking some of its previous guidance to schools in 2017. The proposed regulations would, in several ways, tether the administrative requirements for schools to the standard set by the Supreme Court in Gebser and Davis. In doing so, the proposed regulations would depart from the standards set by ED in previous guidance documents (some of which have since been rescinded). The new regulations would require “actual notice,” rather than constructive notice, of harassment by an education institution to trigger a school’s Title IX responsibilities, and provide that a school’s response to allegations of sexual harassment will violate Title IX only if it amounts to deliberate indifference. In addition, the new regulations would more narrowly define what conduct qualifies as sexual harassment under Title IX, and also impose new procedural requirements, which appear to reflect due process concerns, when schools investigate sexual harassment or assault allegations and make determinations of culpability.

Apr 12, 2019

TurkStream: Russia’s Southern Pipeline to Europe

Apr 11, 2019

The SECURE Act and the Retirement Enhancement and Savings Act Tax Proposals (H.R. 1994 and S. 972)

Apr 5, 2019

Drug Pricing and Intellectual Property Law: A Legal Overview for the 116th Congress

Intellectual property (IP) rights play an important role in the development and pricing of pharmaceutical products such as prescription drugs and biologics. In order to encourage innovation, IP law grants the rights holder a temporary monopoly on a particular invention or product, potentially enabling him to charge higher-than-competitive prices. IP rights, if sufficiently limited, are typically justified as necessary to allow pharmaceutical manufacturers the ability to recoup substantial costs in research and development, including clinical trials and other tests necessary to obtain regulatory approval from the Food and Drug Administration (FDA). However, because they may operate to deter or delay competition from generic drug and biosimilar manufacturers, IP rights have been criticized as contributing to high prices for pharmaceutical products in the United States. Two main types of IP may protect pharmaceutical products: patents and regulatory exclusivities. Patents, which are available to a wide range of technologies besides pharmaceuticals, are granted by the U.S. Patent and Trademark Office (PTO) to new and useful inventions. Pharmaceutical patents may claim chemical compounds in the pharmaceutical product, a method of using the product, a method of making the product, or a variety of other patentable inventions relating to a drug or biologic. The holder of a valid patent generally has the exclusive right to make, use, sell, and import the invention for a term lasting approximately 20 years. If a court concludes that a competitor’s generic or biosimilar version infringes a valid patent, the court may issue an injunction precluding the competitor from making, using, selling, and importing that competing product until the patent expires. In some circumstances, FDA grants regulatory exclusivities to a pharmaceutical manufacturer upon the completion of the process required to market pharmaceutical products. Before a new drug or biologic can be sold in the United States, companies must apply for regulatory approval or licensure from FDA, which determines if the pharmaceutical is safe and effective. For certain pharmaceuticals, such as innovative products or those that serve particular needs, FDA provides a term of marketing exclusivity upon the successful completion of the regulatory process. If a product is covered by an unexpired regulatory exclusivity, FDA generally may not accept and/or approve an application seeking FDA approval of a follow-on product (i.e., a generic drug or biosimilar). Regulatory exclusivities vary in length from as little as six months to as much as 12 years depending on the specific type of drug or biologic at issue and other factors. Like regulatory exclusivities, patent rights can affect when generic and biosimilar manufacturers can market their follow-on products. Pharmaceutical patent disputes are subject to certain specialized procedures under the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act (BPCIA). Under Hatch-Waxman, applicants seeking approval of a generic version of an existing FDA-approved drug must make a certification with respect to each patent that the brand-name drug manufacturer lists as covering the product. If the generic manufacturer challenges those patents, FDA generally cannot approve the generic drug application for 30 months while the patent dispute is litigated. For biologics, applicants seeking approval of a biosimilar version of an existing biological product may choose to engage in the BPCIA’s “patent dance,” a complex scheme of private information exchanges made in preparation for formal patent disputes between brand-name biologic and biosimilar manufacturers. The patent dance does not affect FDA’s ability to approve a biosimilar application. Some pharmaceutical companies have been criticized for charging high prices and engaging in practices that are perceived by some to exploit the existing legal system governing IP rights on pharmaceutical products. For example, some generic manufacturers have claimed that brand-name drug manufacturers have unreasonably refused to sell them samples of brand-name drugs in order to impede their ability to obtain FDA approval and delay market entry of generic competition. Other commentators have criticized the practice of “pay-for-delay” settlements, through which brand-name drug companies settle patent litigation with generic or biosimilar manufacturers by paying them to delay their entry into the market. Still others criticize so-called patent “evergreening,” in which pharmaceutical companies are alleged to serially patent minor improvements or ancillary features of their products in order to extend the effective term of patent protection. In recent years, a number of congressional proposals have been introduced that seek to address these and other issues in IP law that are perceived by some to contribute to high prices for pharmaceutical products. These proposed reforms range from relatively modest changes, such as increasing patent transparency, to more sweeping reforms such as pricing controls and government compulsory licensing provisions.

Apr 4, 2019

Proposed Relocation/Realignment of USDA’s ERS and NIFA

Apr 3, 2019

2018 Farm Bill Primer: Marketing Assistance Loan Program

Apr 3, 2019

Virtual Currencies and Money Laundering: Legal Background, Enforcement Actions, and Legislative Proposals

Law enforcement officials have described money laundering—the process of making illegally obtained proceeds appear legitimate—as the “lifeblood” of organized crime. Recently, money launderers have increasingly turned to a new technology to conceal the origins of illegally obtained proceeds: virtual currency. Virtual currencies like Bitcoin, Ether, and Ripple are digital representations of value that, like ordinary currency, function as media of exchange, units of account, and stores of value. However, unlike ordinary currencies, virtual currencies are not legal tender, meaning they cannot be used to pay taxes and creditors need not accept them as payments for debt. While virtual currency enthusiasts tout their technological promise, a number of commentators have contended that the anonymity offered by these new financial instruments makes them an attractive vehicle for money laundering. Law enforcement officials, regulators, and courts have accordingly grappled with how virtual currencies fit into a federal anti-money laundering (AML) regime designed principally for traditional financial institutions. The federal AML regime consists of two general categories of laws and regulations. First, federal law requires a range of “financial institutions” to abide by a variety of AML program, reporting, and recordkeeping requirements. Second, federal law criminalizes money laundering and various forms of related conduct. Over the past decade, federal prosecutors and regulators have pursued a number of cases involving the application of these laws to virtual currencies. Specifically, federal prosecutors have brought money laundering charges against the creators of online marketplaces that allowed their users to exchange virtual currency for illicit goods and services. In one of these prosecutions, a federal district court held that transactions involving Bitcoin can serve as the predicate for money laundering charges. Federal prosecutors have also pursued charges against the developers of certain virtual currency payment systems allegedly designed to facilitate illicit transactions and launder the proceeds of criminal activity. Specifically, prosecutors charged these developers with conspiring to commit money laundering and operating unlicensed money transmitting businesses. In adjudicating the second category of charges, courts have concluded that the relevant virtual currency payment systems were “unlicensed money transmitting businesses,” rejecting the argument that the relevant criminal prohibition applies only to money transmitters that facilitate cash transactions. Finally, the Financial Crimes Enforcement Network (FinCEN)—the bureau within the Treasury Department responsible for administering the principal federal AML statute—has pursued a number of administrative enforcement actions against virtual currency exchangers, assessing civil penalties for failure to implement sufficient AML programs and report suspicious transactions. As these prosecutions and enforcement actions demonstrate, virtual currencies have a number of features that make them attractive to criminals. Specifically, commentators have noted that money launderers are attracted to the anonymity, ease of cross-border transfer, lack of clear regulations, and settlement finality that accompanies virtual currency transactions. Several bills introduced in the 116th Congress are aimed at addressing these challenges. These bills would, among other things, commission agency analyses of the use of virtual currencies for illicit activities and clarify FinCEN’s statutory powers and duties. Commentators have also identified legal uncertainty as an additional challenge facing prosecutors, regulators, and participants in virtual currency transactions. Moreover, a number of observers have argued that existing AML regulations are likely to stifle innovation by virtual currency developers. In response to these concerns about legal clarity and burdensome regulation, at least one legislative proposal contemplates exempting certain blockchain developers from various AML requirements.

Apr 3, 2019

Agricultural Provisions of the U.S.-Mexico-Canada Agreement

Apr 3, 2019

2018 Farm Bill Primer: Title I Commodity Programs

Apr 3, 2019

Increasing the BCA Spending Limits: Characteristics of Previously Enacted Legislation

The Budget Control Act of 2011 (BCA; P.L. 112-25), enacted on August 2, 2011, generated annual statutory discretionary spending limits for defense and nondefense spending that are in effect through FY2021. If appropriations are enacted that exceed a limit for a fiscal year, across-the-board reductions (i.e., sequestration) are triggered to eliminate the excess spending within that category. The BCA further stipulates that certain discretionary spending—such as appropriations designated as emergency requirements or for overseas contingency operations—are effectively exempt from the limits. For more information on the BCA, see CRS Report R44874, The Budget Control Act: Frequently Asked Questions, by Grant A. Driessen and Megan S. Lynch. Legislation has been enacted increasing the BCA spending limits (or caps) for each year from FY2014 through FY2019. In each case, (1) the legislation increased both defense and nondefense caps (although not always by equal amounts); (2) the legislation increased the caps for two fiscal years; (3) the legislation was enacted after the start of the first fiscal year that it affected; and (4) the legislation included other components, such as provisions affecting mandatory spending. Legislation has not been enacted modifying the discretionary budget authority limits for FY2020 or FY2021. As shown in Figure 1, under current law, the caps for FY2020 would drop by $126 billion (or 10%) relative to the budget authority caps for FY2019. That decrease would consist of a $71 billion drop in the defense cap (from $647 billion to $576 billion) and a $55 billion decrease in the nondefense cap (from $597 billion to $542 billion). Figure 1. BCA Discretionary Limits, FY2014-FY2021 Budget authority in billions of nominal dollars / Notes: BBA 2013, BBA 2015, and BBA 2018 denote the Bipartisan Budget Act of 2013 (P.L. 113-67), Bipartisan Budget Act of 2015 (P.L. 114-74), and Bipartisan Budget Act of 2018 (P.L. 115-123), respectively. A Brief Description of Previously Enacted Legislation Increasing the Spending Limits The Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67, referred to as the Murray-Ryan agreement) increased FY2014 discretionary spending limits for both defense and nondefense budget authority by about $22 billion each. In addition, it increased FY2015 discretionary spending limits for both defense and nondefense budget authority by about $9 billion each. The legislation was enacted in late December 2013, nearly three months into FY2014. The legislation included numerous other components with budgetary ramifications, such as the extension of the BCA’s annual sequester on non-exempt mandatory spending through FY2023 and an increase in security-related aviation fees. The Congressional Budget Office’s (CBO) December 2013 cost estimate projected that the changes to the BCA caps would increase projected outlays by $62 billion over the FY2014-FY2023 period and that other changes included in BBA 2013 would reduce deficits by about $85 billion over the same period. The Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74) increased discretionary spending limits for both defense and nondefense for FY2016 by $25 billion each. In addition, it increased discretionary spending limits for both defense and nondefense for FY2017 by $15 billion each. The legislation was enacted in early November 2015, approximately one month into FY2016. Other components with budgetary effects in BBA 2015 included the extension of mandatory sequestration through FY2025 and the drawdown and sale of resources from the Strategic Petroleum Reserve. CBO’s October 2015 cost estimate projected that the changes to the BCA caps would increase projected outlays by $79 billion over the FY2016-FY2025 period and that other changes included in BBA 2015 would reduce deficits by about $80 billion over the same period. The Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123) increased nondefense and defense discretionary limits in FY2018 and FY2019. In FY2018, BBA 2018 increased the defense limit by $80 billion and increased the nondefense limit by $63 billion, and in FY2019 it increased the defense limit by $85 billion and increased the nondefense limit by $68 billion. The legislation was enacted in late March 2018, nearly halfway through FY2018. The legislation included other components, such as the creation of a temporary congressional committee tasked with significantly reforming the budget and appropriations process and the extension of mandatory sequestration through FY2027. CBO’s February 2018 cost estimate projected that the changes to the BCA caps would increase projected outlays by $290 billion over the FY2018-FY2027 period and that other changes included in BBA 2018 would reduce deficits by about $38 billion over the same period. Figure 2 shows the projected budgetary effects of BBA 2013, BBA 2015, and BBA 2018 as provided in the most recent CBO cost estimate for each piece of legislation. Figure 2. Budgetary Effects of BBA 2013, BBA 2015, and BBA 2018 (Ten-year effects, in billions of dollars) / Source: CRS tabulation of latest legislative cost estimates produced by the Congressional Budget Office and the Joint Committee on Taxation. Notes: Positive numbers indicate projected increases in deficits. Negative numbers indicate the opposite.

Apr 3, 2019

2018 Farm Bill Primer: ARC and PLC Support Programs

Apr 3, 2019

Bureau of Reclamation: FY2020 Appropriations

Apr 2, 2019