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Friday, July 30, 2010

Business Investment and Employment Tax Incentives to Stimulate the Economy


Thomas L. Hungerford
Section Research Manager

Jane G. Gravelle
Senior Specialist in Economic Policy

According to the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), the U.S. economy has been in recession since December 2007. Congress passed and the President signed an economic stimulus package, the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), in February 2009. The $787 billion package included $286 billion in tax cuts to help stimulate the economy. Among the tax reductions, many were tax incentives directed to business. The preliminary estimate of fourth quarter real gross domestic product (GDP) growth is 5.9%; the unemployment rate, a lagging indicator, averaged 9.6% in the third quarter and 10.0% in the fourth quarter of 2009. Federal Reserve Chairman Ben Bernanke expects the economy to continue growing at a modest pace, but predicts that bank lending will remain constrained and the job market will remain weak into at least 2010. To further assist unemployed workers, help business, and stimulate housing markets, Congress passed the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92). The Obama Administration has advocated further business tax incentives to spur investment and employment, especially for small business. The House and Senate passed the Hiring Incentives to Restore Employment (HIRE) Act, which includes an employment tax credit. The President signed the act into law on March 18, 2010.

The two most common measures to provide business tax incentives for new investment are investment tax credits and accelerated deductions for depreciation. The evidence, however, suggests that a business tax subsidy may not necessarily be the best choice for fiscal stimulus, largely because of the uncertainty of its success in stimulating aggregate demand. If such subsidies are used, however, the most effective short-run policy is probably a temporary investment subsidy. Permanent investment subsidies may distort the allocation of investment in the long run.

Employment and wage subsidies are designed to increase employment directly by reducing a firm's wage bill. The tax system is a frequently used means for providing employment subsidies. Most of the business tax incentives for hiring currently under discussion are modeled partially on the New Jobs Tax Credit (NJTC) from 1977 and 1978. Evidence provided in various studies suggests that incremental tax credits have the potential of increasing employment, but in practice may not be as effective in increasing employment as desired. There are several reasons why this may be the case. First, jobs tax credits are often complex and many employers, especially small businesses, may not want to incur the necessary record-keeping costs. Second, since eligibility for the tax credit is determined when the firm files the annual tax return, firms do not know if they are eligible for the credit at the time hiring decisions are made. Third, many firms may not even be aware of the availability of the tax credit until it is time to file a tax return. Lastly, product demand appears to be the primary determinant of hiring. 
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Date of Report: July 21, 2010
Number of Pages: 19
Order Number: R41034
Price: $29.95


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Unemployment Insurance: Available Unemployment Benefits and Legislative Activity


Katelin P. Isaacs
Analyst in Income Security

Julie M. Whittaker
Specialist in Income Security

Alison M. Shelton
Analyst in Income Security


Various benefits may be available to unemployed workers to provide income support. When eligible workers lose their jobs, the Unemployment Compensation (UC) program may provide up to 26 weeks of income support through the payment of regular UC benefits. Unemployment benefits may be extended for up to 53 weeks by the temporarily authorized Emergency Unemployment Compensation (EUC08) program and extended for up to a further 13 or 20 weeks by the permanent Extended Benefit (EB) program under certain state economic conditions. Certain groups of workers who lose their jobs because of international competition may qualify for income support through Trade Adjustment Act (TAA) programs. Unemployed workers may be eligible to receive Disaster Unemployment Assistance (DUA) benefits if they are not eligible for regular UC and if their unemployment may be directly attributed to a declared major disaster.

The authorization for the EUC08 program expires on November 30, 2010. Those beneficiaries receiving tier I, II, III, or IV EUC08 benefits before November 27, 2010, are "grandfathered" for their remaining weeks of eligibility for that particular tier only. There will be no new entrants into any tier of the EUC08 program after November 27, 2010. There are no proposals that would create a tier V of EUC08 benefits (see the section in this report on "Policy Proposals that Target Unemployment Benefit Exhaustees" for additional measures to address the needs of the long-term unemployed).

The American Recovery and Reinvestment Act of 2009 (ARRA), P.L. 111-5, contained several provisions affecting unemployment benefits. ARRA temporarily increased benefits by $25 per week (Federal Additional Compensation, or FAC); extended the EUC08 program through 2009; temporarily provided for 100% federal financing of EB; and allowed states the option of temporarily easing EB eligibility requirements. ARRA also suspended income taxation on the first $2,400 of unemployment benefits received in 2009. In addition, states do not owe or accrue interest, through December 2010, on federal loans to states for the payment of unemployment benefits. ARRA also provided for a special transfer of up to $7 billion in federal monies to state unemployment programs as "incentive payments" for changing certain state UC laws as well as transferred $500 million to the states for administering unemployment programs. P.L. 111-92 expanded the number of weeks available in the EUC08 program through the creation of two additional tiers. P.L. 111-118 and P.L. 111-144 extended the EUC08 program, 100% federal financing of EB, and the FAC through the end of February 2010 and April 5, 2010, respectively. P.L. 111-157 extended these three UC provisions through the week ending on or before June 2, 2010.

On July 22, 2010, the President signed P.L. 111-205, the American Jobs and Closing Tax Loopholes Act of 2010, into law. P.L. 111-205 extends the availability of EUC08 and 100% federal financing of EB until November 30, 2010. P.L. 111-205 does not, however, extend the authorization for the $25 FAC benefit, which expired on May 29, 2010 (May 30, 2010, in New York state).



Date of Report: July 26, 2010
Number of Pages: 37
Order Number: RL33362
Price: $29.95


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Dodd-Frank Wall Street Reform and Consumer Protection Act: Executive Compensation


Michael V. Seitzinger
Legislative Attorney


As part of their financial regulatory reform legislation, both the House and the Senate passed bills with provisions applying to executive compensation. The House- and Senate-passed executive compensation provisions differed, in some cases significantly.

The House and Senate conferees on Wall Street reform passed an executive compensation subtitle. On June 30, 2010, the House agreed to the conference report for H.R. 4173, now referred to as the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Senate agreed to the conference report on July 15, 2010. The President signed the bill into law as P.L. 111-203 on July 21, 2010.

Among the provisions of the bill are say-on-pay requirements, the establishing of independent compensation committees, the clawback of unwarranted excessive compensation, and requirements on the executive compensation at financial institutions.



Date of Report: July 21, 2010
Number of Pages: 5
Order Number: R41319
Price: $19.95


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Thursday, July 29, 2010

Temporary Extension of Unemployment Benefits: Emergency Unemployment Compensation (EUC08)


Katelin P. Isaacs
Analyst in Income Security

Julie M. Whittaker
Specialist in Income Security

Alison M. Shelton
Analyst in Income Security


In July 2008, a new temporary unemployment benefit, the Emergency Unemployment Compensation (EUC08) program, began. The EUC08 program was created by P.L. 110-252, and it has been amended by P.L. 110-449, P.L. 111-5, P.L. 111-92, P.L. 111-118, P.L. 111-144, P.L. 111-157, and P.L. 111-205. The most recent legislation, P.L. 111-205, extended the authorization of the EUC08 program, but did not change the structure of the program or augment benefits. This temporary unemployment insurance program provides up to 20 additional weeks of unemployment benefits to certain workers who have exhausted their rights to regular unemployment compensation (UC) benefits. A second tier of benefits provides up to an additional 14 weeks of benefits (for a total of up to 34 weeks of EUC08 benefits for all unemployed workers). A third tier is available in states with a total unemployment rate of at least 6% and provides up to an additional 13 weeks of EUC08 benefits (for a total of up to 47 weeks of EUC08 benefits in certain states). A fourth tier is available in states with a total unemployment rate of at least 8.5% and provides up to an additional six weeks of EUC08 benefits (for a total of up to 53 weeks of EUC08 benefits in certain states). There are no proposals that would create a fifth tier of benefits.

All tiers of EUC08 benefits are temporary and expire on the week ending on or before November 30, 2010. Those beneficiaries receiving tier I, II, III, or IV of EUC08 benefits before November 27, 2010 (November 28, 2010 in New York) are "grandfathered" for their remaining weeks of eligibility for that particular tier only. There will be no new entrants into any tier of the EUC08 program after November 27, 2010. If an individual is eligible to continue to receive his or her remaining EUC08 benefit tier after November 27, 2010, that individual would not be entitled to tier II benefits once those tier I benefits were exhausted. No EUC08 benefits—regardless of tier—are payable for any week after April 30, 2011.

P.L. 111-92 expanded benefits available in the EUC08 program, creating two new tiers of benefits (bringing total benefit tiers to four) and adding 20 weeks of EUC08 benefits (for a total of up to 53 benefit weeks). P.L. 111-118 extended the EUC08 program, the 100% federal financing of the Extended Benefit (EB) program, and the $25 Federal Additional Compensation (FAC) weekly benefit through February 28, 2010. P.L. 111-144 and P.L. 111-157 extended these same three measures until April 5, 2010, and June 2, 2010, respectively.

On July 22, 2010, the President signed P.L. 111-205, the American Jobs and Closing Tax Loopholes Act of 2010, into law. P.L. 111-205 extends the availability of EUC08 and 100% federal financing of EB until November 30, 2010. P.L. 111-205 did not, however, extend the authorization for the $25 FAC benefit, which expired on May 29, 2010 (May 30, 2010 for New York).



Date of Report: July 26, 2010
Number of Pages: 17
Order Number: RS22915
Price: $29.95


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Executive Compensation: SEC Regulations and Congressional Proposals


Michael V. Seitzinger
Legislative Attorney


Concern about shareholder value, corporate governance, and the economic and social impact of escalating pay for corporate executives has led to a controversy regarding the practices of paying these executives. On July 26, 2006, the Securities and Exchange Commission (SEC or Commission) voted to adopt revisions to its rules on disclosure of executive compensation. On December 22, 2006, the SEC announced that it had adopted changes to the July 26 rules. These December 22 changes have become somewhat controversial, with opponents saying that they obfuscate executive compensation and with proponents saying that the changes are necessary to give a truly accurate picture of executive compensation. On December 16, 2009, the SEC adopted rule changes titled "Proxy Disclosure Enhancements." The provisions addressing disclosures of executive compensation require a discussion of overall employee compensation policies and practices if risks arise that are reasonably likely to have a material adverse effect upon the company.

Additionally, proposals have been made in the current and recent Congresses to limit executive compensation and the amount of deferred compensation for tax purposes. In the 110th Congress, two laws containing executive compensation provisions were enacted: P.L. 110-289, the Housing and Economic Recovery Act of 2008, and P.L. 110-343, the Emergency Economic Stabilization Act of 2008. Bills have also been introduced in the 111th Congress concerning limiting executive compensation. In the 111th Congress, Title VII of P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), sets forth restrictions on the compensation of executives of companies during the period in which any obligation arising from financial assistance provided under the Troubled Assets Relief Program (TARP) remains outstanding. In July 2009 the House Committee on Financial Services circulated a discussion draft of H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act of 2009. On July 31, 2009, the House passed an amended version of H.R. 3269, which is included as Title II of H.R. 4173, passed by the House on December 11, 2009. The Senate considered a proposal of a financial regulatory reform bill, of which Subtitle E of Title IX concerned executive compensation.

Both the House and the Senate passed bills with provisions applying to executive compensation. The House- and Senate-passed executive compensation provisions differed, in some cases significantly. The House and Senate conferees on Wall Street reform passed an executive compensation subtitle. On June 30, 2010, the House agreed to the conference report for H.R. 4173, now referred to as the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Senate agreed to the conference report on July 15, 2010. The President signed the bill into law as P.L. 111-203 on July 21, 2010.

On March 3, 2009, the United States Supreme Court granted certiorari in Jones v. Harris Associates, a case which challenges the fees charged by a mutual fund's investment advisers as excessive and a breach of fiduciary duty. Interest in this case from the executive compensation angle centers on the possibility that the decision may provide a hint as to what the Court could consider excessive executive compensation if it has before it a case concerning, for example, government actions limiting executive compensation. On November 2, 2009, the Court heard oral argument in this case. On March 30, 2010, the Court held that, in order to be successful in holding that an adviser misled the fund's directors and thereby violated his fiduciary duty, investors must show that an investment adviser has charged a "fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm's length bargaining."



Date of Report: July 21, 2010
Number of Pages: 12
Order Number: RS22583
Price: $29.95


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Surplus Lines Insurance: Background and Current Legislation


Baird Webel
Specialist in Financial Economics


In general, insurance is a highly regulated financial product. Every state requires licenses for insurance companies, and most states closely regulate both company conduct and the details of the particular insurance products sold in the state. This regulation is usually seen as important for consumer protection; however, it also creates barriers to entry in the insurance market and typically reduces to some degree the supply of insurance that is available to consumers. Rather than requiring consumers who may be unable to find insurance from a licensed insurer to simply go without insurance, states have allowed consumers to purchase insurance from non-licensed insurers, commonly called nonadmitted or surplus lines insurers. Although any sort of insurance could be sold by a surplus lines insurer, most such transactions tend to be for rarer and more exceptional property and casualty risks, such as art and antiques, hazardous materials, natural disasters, amusement parks, and environmental or pollution risks.

Although surplus lines insurance is sold by insurers who do not hold a regular state insurance license, it is not unregulated. The sale of this insurance is regulated and taxed by the states largely through requirements placed on the brokers who usually facilitate the insurance transactions. The varying state requirements for surplus lines insurance have led to calls for greater harmonization between the states' laws and for federal intervention to promote uniformity. Such federal intervention is the central focus of the Nonadmitted and Reinsurance Reform Act of 2009 (H.R. 2571/S. 1363), which passed the House by voice vote on September 9, 2009. This act was also added as an amendment to the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173) when it was considered on the House floor. H.R. 4173 passed the House on December 11, 2009. The Restoring America's Financial Stability Act of 2010 (S. 3217) included nearly identical language as well. This legislation was reported by the Senate Committee on Banking, Housing, and Urban Affairs on April 15, 2010, and subsequently brought to the Senate floor for consideration. On May 20, 2010, the Senate finished consideration, inserting the amended text of S. 3217 into H.R. 4173 and passing the amended H.R. 4173. The Nonadmitted and Reinsurance Reform Act language was included in the H.R. 4173 conference report, which was agreed to by the House on June 30, 2010, and by the Senate on July 15, 2010. President Obama signed the legislation, now P.L. 111-203, on July 21, 2010.

Provisions aimed at harmonizing state laws regarding surplus lines insurance were also included in the National Insurance Consumer Protection Act (H.R. 1880), whose central focus is the creation of a federal charter for the insurance industry when this bill was introduced on April 2, 2009.

Past Congresses have also taken up legislation on surplus lines insurance. Versions of the Nonadmitted and Reinsurance Reform Act were passed by the House in both the 109th and 110th Congresses, but the Senate did not act on surplus lines legislation in either case. Provisions on surplus lines insurance similar to those in H.R. 1880 were included in the National Insurance Act of 2007, but that bill was not acted on in the 110th Congress.



Date of Report: July 22, 2010
Number of Pages: 9
Order Number: RS22506
Price: $19.95


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Section 404 of the Sarbanes-Oxley Act of 2002 (Management Assessment of Internal Controls): Current Regulation and Congressional Concerns


Michael V. Seitzinger
Legislative Attorney


Section 404 of the Sarbanes-Oxley Act of 2002 requires the Securities and Exchange Commission (SEC) to issue rules requiring annual reports filed by reporting issuers to state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting and for each accounting firm auditing the issuer's annual report to attest to the assessment made of the internal accounting procedures made by the issuer's management. There have been criticisms that this provision is overly burdensome and costly for small and medium-sized companies. On December 15, 2006, the SEC adopted rule changes giving smaller firms more time to comply with Section 404's reporting requirements. Compliance with Section 404 by small and medium-sized companies was an issue in both the 109th and 110th Congresses and has continued to be an issue in the 111th Congress. On November 4, 2009, the House Financial Services Committee recommended H.R. 3817, the Investor Protection Act, which contained a clause, inserted as a bipartisan amendment, permanently exempting businesses with a market capitalization up to $75 million from complying with the auditing requirements of Section 404. This bill was included in H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009, as section 7606, passed by the House on December 11, 2009. The Senatepassed bill on financial regulatory reform, S. 3217, did not have a comparable provision. House and Senate conferees on Wall Street reform approved a conference report, H.Rept. 111-517, which has a provision exempting businesses with a market capitalization of $75 million or less from complying with the auditing requirements of Section 404. Both the House and the Senate agreed to the conference report. The President signed the bill, known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, into law as P.L. 111-203 on July 21, 2010.


Date of Report: July 21, 2010
Number of Pages: 7
Order Number: RS22482
Price: $19.95


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Consumer Bankruptcy and Household Debt


 Mark Jickling
Specialist in Financial Economics  

Jennifer Teefy
Information Research Specialist



The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA; P.L. 109-8) included the most significant amendments to consumer bankruptcy procedures since the 1970s. Bankruptcy reform was enacted in response to the high number of consumer bankruptcy filings, which in 2004 and 2005 reached five times the level of the early 1980s. Why did filings increase so dramatically during a period that included two of the longest economic expansions in U.S. history? Since bankruptcy is by definition a condition of excessive debt, many would expect to see a corresponding increase in the debt burden of U.S. households over the same period. However, while household debt has indeed grown, debt costs as a percentage of income have risen only moderately. What aggregate statistics do not show is that the debt burden does not fall evenly on all families. Financial distress is common among lower-income households: in 2007, 27% of families in the bottom fifth of the income distribution spent more than 40% of their income to repay debt.

Following the effective date of BAPCPA, in October 2005, there was a sharp reduction in the number of bankruptcy filings, in part because there was a "rush to the courthouse" to file before the new law took effect. Since the 2006 lows, the number of filings has risen steadily. In 2009, personal bankruptcy filings reached 1.4 million, close to pre-BAPCPA levels. Unless there is a sharp post-recession reduction (which has not been the historical pattern), it appears that BAPCPA will not produce the effect its supporters hoped for—a permanent reduction in the rate of consumer bankruptcy.

With the recession and financial crisis that began in 2007, the long-term upward trend in consumer indebtedness was interrupted. Amounts owed in all major categories of household debt fell, most significantly in credit card debt outstanding (down by 11.4% between December 2008 and January 2010) and home equity loans (down 8.6% during 2008 and 2009).

This report presents statistics on bankruptcy filings, household debt, and families in financial distress, and it will be updated as new statistics become available.

Date of Report: June 23, 2010
Number of Pages: 9
Order Number: RS20777
Price: $29.95

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Tuesday, July 27, 2010

Financial Turmoil: Federal Reserve Policy Responses


Marc Labonte
Specialist in Macroeconomic Policy

The Federal Reserve (Fed) has been central in the policy response to the financial turmoil that began in August 2007. It has sharply increased reserves to the banking system through open market operations and lowered the federal funds rate and discount rate on several occasions. Since December 2008, it has allowed the federal funds rate to fall close to zero. As the crisis deepened, the Fed's focus shifted to providing liquidity directly to the financial system through new policy tools. Through new credit facilities, the Fed first expanded the scale of its lending to the banking system and then extended direct lending to non-bank financial firms. The latter marked the first time since the Great Depression that firms that are not banks or members of the Federal Reserve System have been allowed to borrow directly from the Fed. After the crisis worsened in September 2008, the Fed began providing credit directly to markets for commercial paper and asset-backed securities. All of these emergency facilities had expired by the end of June 2010, but central bank liquidity swap lines were reopened in May 2010 in response to the crisis in Greece. The Fed also provided emergency assistance to Bear Stearns, AIG, and Citigroup over the course of the crisis; the Fed still holds assets from and loans to AIG and assets from Bear Stearns.

These programs resulted in an increase in the Fed's balance sheet of $1.4 trillion at its peak in December 2008, staying relatively steady since then. The Fed's authority and capacity to lend is bound only by fears of the inflationary consequences, which have been partly offset by additional debt issuance by the Treasury. High inflation has not materialized yet because most of the liquidity created by the Fed is being held by banks as excess reserves, but after the economy stabilizes, the Fed may have to scale back its balance sheet rapidly to avoid it. Asset sales could be disruptive, but the Fed has argued that it can contain inflationary pressures through the payment of interest on bank reserves, which it was authorized by Congress to do in 2008.

The statutory authority for most of the Fed's recent actions is based on a clause in the Federal Reserve Act to be used in "unusual or exigent circumstances." All loans are backed by collateral that reduces the risk of losses. Any losses borne by the Fed from its loans or asset purchases would reduce the income it remits to the Treasury, making the effect on the federal budget similar to if the loans were made directly by Treasury. It is highly unlikely that losses would exceed its other income and capital, and require revenues to be transferred to the Fed from the Treasury. To date, the Fed's crisis activities have increased its net income.

Two policy issues raised by the Fed's actions are issues of systemic risk and moral hazard. Moral hazard refers to the phenomenon where actors take on more risk because they are protected. The Fed's involvement in stabilizing Bear Stearns, AIG, and Citigroup stemmed from the fear of systemic risk (that the financial system as a whole would cease to function) if they were allowed to fail. In other words, the firms were seen as "too big (or too interconnected) to fail." The Fed regulates member banks to mitigate the moral hazard that stems from access to government protections. Yet Bear Stearns and AIG were not under the Fed's regulatory oversight because they were not member banks.

Some Members of Congress have expressed concern that certain details of the Fed's lending activities are kept confidential. H.R. 4173 adds conditions to the Fed's emergency lending authority, removes most GAO audit restrictions, and requires disclosure of the identities of borrowers with a delay. It also changes the Fed's role in the financial regulatory system (see CRS Report R40877, Financial Regulatory Reform: Systemic Risk and the Federal Reserve).



Date of Report: June 15, 2010
Number of Pages: 56
Order Number: RL34427
Price: $29.95

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The Dodd-Frank Wall Street Reform and Consumer Protection Act: Titles III and VI, Regulation of Depository Institutions and Depository Institution Holding Companies


M. Maureen Murphy
Legislative Attorney


The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, P.L. 111-203, has as its main purpose financial regulatory reform. Titles III and VI effectuate changes in the regulatory structure governing depository institutions and their holding companies and, thus, constitute a substantial component of the reform effort. Under Title III, there will no longer be a single regulator of federal and state-chartered savings associations, also known as thrifts or savings and loan associations. Title III abolishes the Office of the Thrift Supervision (OTS) and contains extensive provisions respecting the rights of affected employees as well as other administrative matters. It allocates the OTS functions among three existing regulators: the Comptroller of the Currency (OCC) will regulate federally chartered thrifts; the Federal Deposit Insurance Corporation (FDIC), state-chartered thrifts; and the Board of Governors of the Federal Reserve System (FRB), savings and loan holding companies. Title III also makes certain changes to deposit insurance: it makes permanent the increase of deposit insurance coverage to $250,000, and makes that increase retroactive to January 1, 2008. It extends full insurance coverage of noninterest bearing checking accounts for two additional years and authorizes a similar program for credit unions. Included in Title III is also a requirement that the Department of the Treasury and each federal financial regulatory agency establish an office of Minority and Women Inclusion.

Title VI addresses some perceived inadequacies with respect to prudential regulation of depository institutions and their holding companies, including the existence of certain exceptions to the Bank Holding Company Act's (BHC Act's) general prohibition on affiliation of banking institutions and commercial or manufacturing concerns; investment in hedge funds or private equity funds and proprietary trading by banking institutions; gaps in the authority of the FRB to oversee all of the subsidiaries of bank holding companies; the need for greater coordination among the regulators with respect to enforcement actions, charter conversions, and mergers and acquisitions; and elimination of some of the differences affecting the regulation of thrifts and banks, state-chartered and federally chartered institutions, and bank and thrift holding companies.

The full implications of Titles III and VI will not be apparent until the agencies promulgate the many implementing regulations required before many of the provisions go into effect. Generally, the legislation specifies a time period for when a particular rulemaking is to be completed; in some cases, studies are required before the rulemaking may occur.



Date of Report: June 23, 2010
Number of Pages: 23
Order Number: R41339
Price: $29.95

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The Dodd-Frank Wall Street Reform and Consumer Protection Act, Title X: The Consumer Financial Protection Bureau


  David H. Carpenter
Legislative Attorney


In the wake of what many believe is the worst U.S. financial crisis since the Great Depression, the Obama Administration proposed sweeping reforms of the financial services regulatory system— including the creation of an executive agency with authority over consumer financial issues, the broad outline of which has been encompassed in a document called the Administration's White Paper (the White Paper). The House of Representatives began consideration of bills seeking similar reform, which in large part were shepherded by Representative Barney Frank, Chairman of the Committee on Financial Services. On December 11, 2009, the House approved H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009. On May 20, 2010, the Senate approved its own financial reform measure, H.R. 4173, the Restoring American Financial Stability Act of 2010. (For an analysis of the consumer protection provisions of these proposals and how they varied, see CRS Report R40696, Financial Regulatory Reform: Consumer Financial Protection Proposals, by David H. Carpenter and Mark Jickling; for an overview of the overall financial reform proposals, see CRS Report R40975, Financial Regulatory Reform and the 111th Congress, coordinated by Baird Webel.)

A conference committee, chaired by Representative Frank and Senator Christopher Dodd, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, was formed to reconcile the two bills. On June 25, 2010, the conference committee agreed to file a conference report for H.R. 4173, renamed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). On June 30, 2010, the House approved the conference report. The Senate approved the measure on July 15, 2010. The bill was signed into law on July 21, 2010, by President Obama as P.L. 111-203.

Title X of the Dodd-Frank Act is entitled the Consumer Financial Protection Act of 2010 (CFP Act). The CFP Act establishes a Bureau of Consumer Financial Protection (CFPB or Bureau) within the Federal Reserve System with rulemaking, enforcement, and supervisory powers over many consumer financial products and services and the entities that sell them. The law also transfers to the Bureau the primary rulemaking and enforcement authority over many federal consumer protection laws enacted prior to the Dodd-Frank Act (the "enumerated consumer laws"), such as the Truth in Lending Act and the Real Estate Settlement Procedures Act.

This report provides a legal overview of the regulatory structure of consumer finance under existing federal law, which is followed by an analysis of how the CFP Act will change this legal structure, with a focus on the Bureau's organization and funding; the entities and activities that fall (and do not fall) under the Bureau's supervisory, enforcement, and rulemaking authority; the Bureau's general and specific rulemaking powers and procedures; and an analysis of the act's preemption standards over state consumer protection laws as they apply to national banks and thrifts. 
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Date of Report: June 21, 2010
Number of Pages: 19
Order Number: R41338
Price: $29.95


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Economic Recovery: Sustaining U.S. Economic Growth in a Post-Crisis Economy


Craig K. Elwell
Specialist in Macroeconomic Policy


The recession that began in late 2007 was long and deep. It is likely to prove to be the worst economic contraction since the 1930s (but still much less severe than the Great Depression). The slowdown of economic activity was moderate through the first half of 2008, but at that point the weakening economy was overtaken by a major financial crisis that would exacerbate the economic weakness and accelerate the decline.

Recent evidence suggests that the process of economic recovery has begun. Real gross domestic product (GDP) has been on a positive track since mid-2009. The stock market has recovered from its lows, and employment has increased moderately. On the other hand, significant economic weakness remains evident, particularly in the labor and housing markets.

In the typical post-war business cycle, lower than normal growth during the recession is quickly followed by a recovery period with above normal growth. This above normal growth serves to speed up the reentry of the unemployed to the workforce. Once the economy reaches potential output (and full employment), growth returns to its normal growth path where the pace of aggregate spending advances in step with the pace of aggregate supply.

There is concern that this time the U.S. economy will either not return to its pre-recession growth path but perhaps remain permanently below it, or return to the pre-crisis path but at a slower than normal pace. Problems on the supply side and the demand side of the economy may lead to a weaker than normal recovery.

If the pace of private spending proves insufficient to assure a sustained recovery, would further stimulus by monetary and fiscal policy be warranted? One of the important lessons from the Great Depression is to guard against a too hasty withdrawal of fiscal and monetary stimulus in an economy recovering from a deep decline. The removal of fiscal and monetary stimulus in 1937 is thought to have stopped a recovery and caused a slump that did not end until WWII.

Opponents of further stimulus maintain that the accumulation of additional government debt would lower future economic growth, but supporters argue that additional stimulus is the appropriate near-term policy.

In regard to the long-term debt problem, it is true that for an economy operating close to potential output, government borrowing to finance budget deficits will in theory draw down the pool of national saving, crowding out private capital investment and slowing long-term growth. However, the U.S. economy is currently operating well short of capacity and the risk of such crowding out occurring and damaging future economic growth seems low.

Once the short-term problem of weak demand is solved and the economy has returned to a normal growth path, mainstream economists' consensus policy response for an economy with a looming debt crisis is fiscal consolidation—cutting deficits. Such a policy would have the benefits of low and stable interest rates, a less fragile financial system, improved investment prospects, and possibly faster long-term growth.



Date of Report: June 22, 2010
Number of Pages: 19
Order Number: R41332
Price: $29.95

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Monday, July 26, 2010

Community Development Block Grant Funds in Disaster Relief and Recovery


Eugene Boyd
Analyst in Federalism and Economic Development Policy


In the aftermath of presidentially declared disasters, Congress has used a variety of programs to help states and local governments finance recovery efforts, among them the Community Development Block Grant (CDBG) program. Over the years, Congress has appropriated supplemental CDBG funds to assist states and communities recover from such natural disasters as hurricanes, earthquakes, and tornadoes. In addition, CDBG funds supported recovery efforts in New York City following the terrorist attacks of September 11, 2001; in Oklahoma City following the bombing of the Alfred Murrah Building in 1995; and in the city and county of Los Angeles following the riots of 1992. In response to those calamities, CDBG funds were made available for short-term relief efforts, mitigation actions, and long-term recovery, and to provide housing and business assistance, infrastructure reconstruction, and public services.

The Gulf Coast hurricanes of 2005 (Katrina, Rita, and Wilma) resulted in the largest appropriation of CDBG funds for disaster relief and recovery in the program's history. Since December 2005, Congress has provided $19.85 billion in CDBG disaster-related assistance to the five states (Alabama, Florida, Louisiana, Mississippi, and Texas) affected by the Gulf Coast hurricanes of 2005. This included $11.5 billion in CDBG assistance appropriated in the Defense Appropriations Act for FY2006, P.L. 109-148; $5.2 billion in the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery Act of 2006, P.L. 109-234; and $3 billion (exclusively for Louisiana's Road Home Program) appropriated in the Department of Defense Appropriations Act for FY2008, P.L. 110-116.

The 110th Congress appropriated $6.8 billion in CDBG funds to be used to respond to presidentially declared disasters occurring in 2008. This included $300 million appropriated under the Department of Defense Appropriations Act, P.L. 110-252, and $6.5 billion included in the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, P.L. 110-329.

In general, CDBG disaster relief acts passed since 2005 have included provisions that limit the amount a state could use for administrative expenses to 5%; allow a state to seek waivers of program requirements, except those related to fair housing, nondiscrimination, labor standards, and environmental review; prohibit the use of funds for activities that were reimbursable by or made available by the Federal Emergency Management Agency (FEMA) or the Army Corp of Engineers; and require each state to develop and HUD to approve state recovery plans

As a condition for the receipt of CDBG disaster recovery assistance, states are required to submit quarterly reports to the House and Senate Appropriations Committees on all awards and use of funds. The acts do not prescribe the form these quarterly reports are to take nor the content they are to include, except for identifying and rationalizing the use of sole source contracts.

The 111th Congress is considering a supplemental appropriations act for 2010, H.R. 4899. The Senate passed version of the bill would provide an additional $100 million in CDBG funds to help states and communities undertake disaster recovery activities in presidentially declared disaster areas affected by severe storms and flooding during the period from March 2010 through May 2010. This version of the bill would limit distribution of these funds to states where the entire state was declared a disaster area (Rhode Island) and to states where at least 20 counties within the state were declared disaster areas (Tennessee, Kentucky, and Nebraska).



Date of Report: July 12, 2010
Number of Pages: 15
Order Number: RL33330
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Thursday, July 22, 2010

Federal Trust Funds and the Budget


Thomas L. Hungerford
Specialist in Public Finance

Federal trust funds are an important part of the budget. About 40% of all federal outlays are through trust funds and about 45% of all federal receipts come to trust funds. This importance is further highlighted by the considerable congressional interest in trust funds; as of July 1, 2010, over 580 bills had been introduced in the 111th Congress to create or modify federal trust funds.

A federal trust fund often represents a long-term commitment to use specific funds for a certain purpose. It has been argued that the creation of a trust fund is one way for Congress to "commit" future Congresses to fund a specific program or "to make long-term promises stick." Dedicated revenues are used to fund the program and the revenues usually come from the beneficiaries of the program.

There are about 200 federal trust funds, but most trust funds are relatively small with balances of less than $100 million. The 12 largest trust funds account for over 98% of income to all trust funds, outgo from all trust funds, and balances of all trust funds.

The trust funds surplus (i.e., revenues minus outgo) in FY2009 amounted to $127.3 billion. This surplus is mostly invested in government obligations and transferred to the general fund for spending. The federal funds deficit for FY2009 was $1,540.0 billion, but because of the trust funds surplus, the unified federal budget deficit (what is widely reported in the press) was $1,412.7 billion. Receipts in excess of outlays are added to the balance of the trust funds. By law, all trust funds except the Railroad Retirement fund must invest balances in government obligations. The government securities held by trust funds are part of federal debt that is subject to the statutory federal debt limit. At the end of FY2009, the trust funds held $4,013.8 billion in government securities.

From time to time, it is reported that one trust or another is on the verge of bankruptcy. In the context of trust funds the term "bankruptcy" is meaningless. It is true that a trust fund's outgo can be greater than its income and trust funds can have a zero balance, but the federal government is not in danger of "going out of business" or having its assets seized by creditors. Congress has often taken actions to increase a trust fund's revenues or reduce its outgo when it has faced imminent insolvency or exhaustion of its balances.

Some observers have argued that trust fund programs increase the federal deficit and reduce national saving. The evidence supports the claim that trust fund surpluses reduced the federal government deficit and increased public saving. This becomes important at the time when a trust fund revenues are less than its outgo and the Treasury securities held by the trust fund need to be redeemed to cover outgo. The Treasury securities in the trust fund are claims on the government and the government will to find real resources (by raising revenue, decreasing spending, or issuing more debt) to cover these claims when the obligations are redeemed.


Date of Report: July 20, 2010
Number of Pages: 18
Order Number: R41328
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Tuesday, July 20, 2010

Tax Issues and the Gulf of Mexico Oil Spill: Legal Analysis of Payments and Tax Relief Policy Options


Molly F. Sherlock
Analyst in Economics  

Erika K. Lunder
Legislative Attorney  

Edward C. Liu
Legislative Attorney  

Heather S. Klein
Research Assistant

The explosion of the Deepwater Horizon oil rig and subsequent oil spill into the Gulf of Mexico has led to substantial damages, particularly in the form of lost wages and income. BP has begun to make interim payments to compensate for lost income resulting from the oil spill. Given the magnitude of the economic disruption resulting from the spill, however, policymakers may consider exploring alternative mechanisms for providing relief to the affected region. One option is to provide relief through the tax code by adopting measures similar to those employed following past major disasters.

BP is currently making interim payments to claimants "who are not receiving their ordinary income or profit" during the cleanup phase. The IRS has released guidance regarding the tax treatment of these payments in an effort to help taxpayers understand the tax implications of receiving claims payments from BP. This report provides a legal analysis of the tax status of payments received from BP by Gulf Coast victims under current law, and discusses potential legal distinctions between payments received for lost income versus those that may be received to compensate for property loss and physical injuries. Further, this report comments on the tax implications in the event a federal disaster declaration is issued with respect to this incident.

In the past, Congress has used the tax code as a tool to provide relief to disaster victims. While the Gulf of Mexico oil spill has not been classified as a federally declared disaster, the tax code could be used as a mechanism for delivering additional relief. Policy options that could be explored include added casualty loss deductions, an extended net operating loss (NOL) period, employment incentives, enhanced access to retirement savings, and incentives for charitable relief. Similar policies were adopted following past disasters.

The oil spill in the Gulf of Mexico presents lawmakers with unique challenges in using the tax code to provide relief. First, the oil spill is not a natural disaster. The oil spill is the result of human action where, unlike a natural disaster, compensation may be recovered from a financially responsible party. Second, the nature of the damages is different from those typically borne by victims of natural disasters. Specifically, damages may primarily be in the form of lost business income and employment, rather than direct property loss. Relief that has been awarded in the past, such as tax filing extensions to assist with the destruction of taxpayer records, is not likely to be an issue. Finally, if the goal is to provide relief or assistance to the poor, the tax code may not be the best policy instrument.

Legislation has been introduced in the House and is being discussed in the Senate that would provide tax relief to the Gulf Coast oil spill victims. The Oil Spill Tax Relief Act of 2010 (H.R. 5598) would require that any compensation provided by BP to an oil spill victim be treated as a qualified disaster payment, and thereby excluded from gross income for tax purposes. The Gulf Coast Access to Savings Act of 2010 (H.R. 5602) would allow for enhanced access to retirement savings. The Gulf Oil Spill Recovery Act of 2010 (H.R. 5699) would make various tax relief measures available to businesses and individuals. Senate discussions include proposals similar to what has been introduced in the House, as well as a tax holiday for tourism-related activities.



Date of Report: July 15, 2010
Number of Pages: 18
Order Number: R41323
Price: $29.95

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Covered Bonds: Issues in the 111th Congress


Edward V. Murphy
Specialist in Financial Economics


Covered bonds are a relatively common method of funding mortgages in Europe, but uncommon in the United States. A covered bond is a recourse debt obligation that is secured by a pool of assets, often mortgages. The holders of the bond are given additional protection in the event of bankruptcy or insolvency of the issuing lender. Covered bonds have some features, such as pooled mortgages, that resemble securitization, but the original lenders maintain a continuing interest in the performance of the loans. Because some believe that the subprime mortgage turmoil may have been influenced by poor incentives for lenders using the securitization process, some policymakers have recommended covered bonds as an alternative for U.S. mortgage markets. Although covered bond contracts are not prohibited in the United States, some policymakers believe that legislation and agency rulemaking could facilitate the growth of a domestic covered bond market.

In some countries, covered bonds conforming to statutorily prescribed features may receive enhanced protections or greater regulatory certainty. A statutory framework for covered bonds often includes four elements: (1) the bond is issued by (or bondholders otherwise have full recourse to) a credit institution that is subject to public supervision and regulation; (2) bondholders have a claim against a cover pool of financial assets in priority to the unsecured creditors of the credit institution; (3) the credit institution has the ongoing obligation to maintain sufficient assets in the cover pool to satisfy the claims of covered bondholders at all times; and (4) in addition to general supervision of the issuing institution, public or other independent bodies supervise the institution's specific obligations to the covered bonds.

Compared with securitization, covered bonds may be less susceptible to poor underwriting standards because issuers maintain risk exposure or "skin in the game," perhaps minimizing problems of the "originate to distribute" model of lending. Institutions that issue covered bonds may be less susceptible to investor panic because the status of covered bonds on their balance sheet is transparent. On the other hand, reliance on covered bonds may reduce aggregate lending because it ties up more capital than does securitization.

Some features of American banking regulations may have to be clarified to facilitate the use of covered bonds. Covered bonds could affect potential recovery for the Federal Deposit Insurance Corporation (FDIC) when banks fail. The FDIC issued two new policy statements in 2008, Financial Institution Letter (FIL) 34-2008 and FIL 73-2008, clarifying its obligations to the holders of covered bonds if an FDIC-insured institution is placed in FDIC receivership or conservatorship.

In the 111th Congress, there has been a House Committee on Financial Services hearing (December 15, 2009) and two covered bonds-related bills introduced. Legislation includes the Equal Treatment for Covered Bonds Act of 2009, H.R. 2896, and the United States Covered Bond Act of 2010, H.R. 4844, both offered by Representative Garrett. H.R. 4844 would provide a statutory covered bond framework in the United States similar to some European countries. Neither of these bills was included in the financial reform bill conference report for H.R. 4173.



Date of Report: July 15, 2010
Number of Pages: 15
Order Number: R41322
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Deepwater Horizon Oil Spill Disaster: Risk, Recovery and Insurance Implications


Rawle O. King
Analyst in Financial Economics and Risk Assessment


The April 2010 Deepwater Horizon oil spill disaster in the Gulf of Mexico is now being characterized as the largest spill to have occurred in U.S. waters. As efforts to contain the current spill proceed, the likely scale of clean-up costs and third-party damages has prompted congressional review of clean-up and damage compensation mechanisms, as well as of ways to facilitate future oil spill prevention, response, and recovery. A key element is the role of insurance in ensuring that costs of spills can be financed, while at the same time enabling the continued effective and responsible functioning of offshore energy exploration and production, as well as protecting related economic interests.

The United States has an explicit oil spill liability and insurance mechanism to address the Deepwater Horizon incident. In 1990, Congress enacted the Oil Pollution Act (OPA) to strengthen the safety and environmental practices in the offshore energy exploration and production business, to create a system of so-called "financial responsibility laws" and compulsory liability insurance combined with strict liability standards, and to place limitations on liability. Although liable for all removal costs, current law limits an offshore facility's liability for economic and natural resources damages to $75 million per incident. Damages in excess of the cap could be paid by the Oil Spill Liability Trust Fund, which is financed primarily through a fee on domestic and imported crude oil.

Lease holders of a covered offshore facility (COF) must demonstrate a minimum amount of oil spill financial responsibility (OSFR) of $35 million per 35,000 barrels of "worst case oil-spill discharge" up to a maximum of $150 million for COF located in the Outer Continental Shelf (OCS) and $10 million in state waters. OSFR can be demonstrated in various ways including surety bonds, guarantees, letters of credit, and in some cases self insurance, but the most common method is by means of an insurance certificate.

Legislative measures (S. 3305, H.R. 5214, H.R. 5629) currently seek to raise the limit of environmental liability on responsible parties from an oil spill from the current $75 million, in some cases abolishing the limit altogether. Concerns have been expressed that higher limits of liability will deter many smaller operators (in terms of net worth) and their investors, as they may not be able to meet significantly higher financial responsibility requirements because of limited offshore energy insurance capacity.

The offshore energy insurance market currently has a finite amount of liability insurance capacity, including coverage for offshore oil pollution spills in U.S. waters, somewhere in the range of $1.25 billion to $1.5 billion. Working capacity for OSFR certification is currently no more than $200 million—an amount that is likely to be far less than what the market will demand should Congress choose to increase the limit of liability on responsible parties to unlimited from the current $75 million. Members of Congress might consider ways to assist the development of alternative sources of insurance capacity for spreading oil spill financial risks. Some of the alternative risk transfer mechanisms include "reinsurance sidecars," catastrophe bonds, and derivative financial instruments that securitize insurance risk. These alternative risk transfer mechanisms turn an insurance policy or reinsurance contract into a financial security that is then transferred to investors in the capital markets. These risk financing options could in theory provide the added capital needed in the insurance marketplace to cover the higher liability and associated OSFR limits.



Date of Report: July 12, 2010
Number of Pages: 24
Order Number: R41320
Price: $29.95

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Dodd-Frank Wall Street Reform and Consumer Protection Act: Executive Compensation


Michael V. Seitzinger
Legislative Attorney


As part of their financial regulatory reform legislation, both the House and the Senate passed bills with provisions applying to executive compensation. The House- and Senate-passed executive compensation provisions differed, in some cases significantly.

The House and Senate conferees on Wall Street reform passed an executive compensation subtitle. On June 30, 2010, the House agreed to the conference report for H.R. 4173, now referred to as the Dodd-Frank Wall Street Reform and Consumer Protection Act. The bill has been referred to the Senate. Among the provisions of the bill are say-on-pay requirements, the establishing of independent compensation committees, the clawback of unwarranted excessive compensation, and requirements on the executive compensation at financial institutions.



Date of Report: July 12, 2010
Number of Pages: 5
Order Number: R41319
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The First-Time Homebuyer Tax Credit


Carol A. Pettit
Legislative Attorney

Homebuyers who were unable to close on their properties by the June 30, 2010, deadline imposed by the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92) may still be able to receive the first-time homebuyer tax credit if they close before October 1, 2010, so long as they had a binding contract for the property before May 1, 2010, and that contract required closing before July 1, 2010, and they meet all other requirements for the credit. P.L. 111-198, enacted July 2, 2010, and effective for closings after June 30, 2010, provides the additional time for closing. It makes no other changes to the credit—§ 36 of the Internal Revenue Code.

The first-time homebuyer credit was established in 2008 by P.L. 110-289. It was modified and extended by P.L. 111-5 in February 2009. It was further extended by P.L. 111-92 in November 2009, and expanded to include some homebuyers who did not qualify under the credit's original definition of a first-time homebuyer. These homebuyers—called "long-time residents"—must have owned and lived in their principal residence for at least five consecutive years during the eight-year period that ends on the date they purchase a subsequent property to use as their principal residence.

The credit is based on 10% of the purchase price of property that is used as the purchaser's principal residence. For purchases before 2009, it is limited to $7,500, which generally must be repaid over a 15-year period that begins with the second tax year following the tax year for the year of purchase. For purchases after 2008, the credit is generally limited to $8,000, but that limit is reduced to $6,500 for "long-time residents." Repayment is not required unless taxpayers cease to use the property as their principal residences within three years of the date of purchase.

Regardless of the year of purchase, the credit may be reduced or eliminated for those with incomes over a threshold amount. For purchases before November 7, 2009, the threshold amount is $150,000 for joint filers and $75,000 for all others. For purchases after November 6, 2009, the threshold is increased to $225,000 for joint filers and $125,000 for others.

There are some limitations on qualifying for the credit. No credit is allowed for property (1) located outside the United States; (2) inherited; (3) purchased from a close relative; or (4) purchased by a non-resident alien. Property purchased in 2008 will not qualify if financed with the proceeds of tax-exempt mortgage revenue bonds, or if the purchaser qualified for the first-time homebuyer credit in the District of Columbia in 2008 or earlier. Certain additional restrictions apply to purchases made after November 6, 2009: (1) residences costing more than $800,000 will not qualify; (2) purchasers must be at least 18 years old; and (3) purchasers cannot be eligible to be claimed as a dependent on another taxpayer's tax return.

In mid-2009, the FHA authorized state housing finance agencies and others to arrange advances of the credit to taxpayers, effectively allowing taxpayers to borrow against the credit if funds were used for down payments, prepaid expenses, or closing costs. The purchase must have been completed before the credit is claimed on a tax return, but it can be claimed on an amended return for the tax year prior to the year of purchase. Generally credits claimed on tax returns for 2009 and later must be documented with a copy of the settlement statement attached to the return.

There are special provisions regarding both the eligible purchase dates and the repayment provisions for members of the military, foreign service, and intelligence communities
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Date of Report: July 6, 2010
Number of Pages: 20
Order Number: RL34664
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Monday, July 19, 2010

Unemployment Insurance: Available Unemployment Benefits and Legislative Activity


Katelin P. Isaacs
Analyst in Income Security

Julie M. Whittaker
Specialist in Income Security

Alison M. Shelton
Analyst in Income Security


Various benefits may be available to unemployed workers to provide income support. When eligible workers lose their jobs, the Unemployment Compensation (UC) program may provide up to 26 weeks of income support through the payment of regular UC benefits. Unemployment benefits may be extended for up to 53 weeks by the temporarily authorized Emergency Unemployment Compensation (EUC08) program and extended for up to a further 13 or 20 weeks by the permanent Extended Benefit (EB) program under certain state economic conditions. Certain groups of workers who lose their jobs because of international competition may qualify for income support through Trade Adjustment Act (TAA) programs. Unemployed workers may be eligible to receive Disaster Unemployment Assistance (DUA) benefits if they are not eligible for regular UC and if their unemployment may be directly attributed to a declared major disaster.

The authorization for the EUC08 program expired on June 2, 2010. Those beneficiaries receiving tier I, II, III, or IV EUC08 benefits before May 29, 2010, are "grandfathered" for their remaining weeks of eligibility for that particular tier only. There will be no new entrants into any tier of the EUC08 program after May 30, 2010. There are no proposals that would create a tier V of EUC08 benefits (see the section in this report on "Policy Proposals that Target Unemployment Benefit Exhaustees" for additional measures to address the needs of the long-term unemployed).

The American Recovery and Reinvestment Act of 2009 (ARRA), P.L. 111-5, contained several provisions affecting unemployment benefits. ARRA temporarily increased benefits by $25 per week (Federal Additional Compensation, or FAC); extended the EUC08 program through 2009; temporarily provided for 100% federal financing of EB; and allowed states the option of temporarily easing EB eligibility requirements. ARRA also suspended income taxation on the first $2,400 of unemployment benefits received in 2009. In addition, states do not owe or accrue interest, through December 2010, on federal loans to states for the payment of unemployment benefits. ARRA also provided for a special transfer of up to $7 billion in federal monies to state unemployment programs as "incentive payments" for changing certain state UC laws as well as transferred $500 million to the states for administering unemployment programs. P.L. 111-92 expanded the number of weeks available in the EUC08 program through the creation of two additional tiers. P.L. 111-118 and P.L. 111-144 extended the EUC08 program, 100% federal financing of EB, and the FAC through the end of February 2010 and April 5, 2010, respectively.

On April 15, 2010, the President signed into law P.L. 111-157, which extended EUC08, 100% federal financing of EB, and the FAC benefit until the week ending on or before June 2, 2010.

On March 10, 2010, the Senate passed H.R. 4213, which would extend the availability of EUC08, 100% federal financing of EB, and the FAC, through the end of December 2010. H.R. 4213 went back to the House where it was amended to extend these three unemployment provisions through November 2010. The latest House version of H.R. 4213 was passed on May 28, 2010, and has gone back to the Senate for consideration.

On July 1, 2010, the House passed H.R. 5618, which would extend EUC08 and 100% federal financing of EB through the end of November 2010. S. 3520, introduced on June 22, 2010, would extend EUC08, 100% federal financing of EB, and the FAC through December 2010. Two bills introduced on June 30, 2010, would extend EUC08 and 100% federal financing of EB: one, H.R. 5647, would extend these two provisions through the end of September 2010; and another, S. 3551, would extend them through the end of November 2010.



Date of Report: July 8, 2010
Number of Pages: 38
Order Number: RL33362
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Federal Programs Available to Unemployed Workers


Katelin P. Isaacs, Coordinator
Analyst in Income Security

David H. Bradley
Analyst in Labor Economics

Janemarie Mulvey
Specialist in Aging and Income Security

John J. Topoleski
Analyst in Income Security


Four groups of federal programs target unemployed workers: unemployment insurance, health care assistance, job search assistance, and training. This report presents information on federal programs targeted to unemployed workers specifically, but does not attempt to discuss meanstested programs (such as Medicaid or SSI) that are available regardless of employment status.

When eligible workers lose their jobs, the Unemployment Compensation (UC) program may provide up to 26 weeks of income support through the payment of regular UC benefits. Unemployment benefits may be extended for up to 53 weeks by the temporarily authorized Emergency Unemployment Compensation (EUC08) program—which is currently unavailable— and additionally extended for up to 13 or 20 weeks by the permanent Extended Benefit (EB) program if certain economic conditions exist within the state. Certain groups of workers who lose their jobs on account of international competition may qualify for additional or supplemental income support through Trade Adjustment Act (TAA) programs or, if they are aged 50 or older, for Reemployment Trade Adjustment Assistance (RTAA). If an unemployed worker is not eligible to receive UC benefits and the worker's unemployment may be directly attributed to a declared major disaster, a worker may be eligible to receive Disaster Unemployment Assistance (DUA) benefits.

Two federal laws may aid unemployed workers in the purchase of health insurance. The first, the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), allows unemployed workers in certain circumstances to continue health insurance coverage from their employers. The second, the Health Coverage Tax Credit (HCTC), allows certain TAA and RTAA participants to receive an advanceable and refundable tax credit for purchasing health insurance.

Federal support for Americans seeking assistance to obtain, retain, or change employment is undertaken by a national system of local One-Stop Career Centers (One-Stops) that were established by the Workforce Investment Act (WIA) of 1998. A variety of services and partner programs—notably including UC and TAA—are located within or linked to One-Stops, which primarily provide job search assistance, career counseling, labor market information, and other employment services. Core labor exchange services (matching job seekers and employers) are provided by the U.S. Employment Service (ES), which was first established by the Wagner- Peyser Act of 1933 and most recently amended under Title III of WIA. In addition to ES, Title I of WIA authorizes resources for similar core and intensive employment services for youth, adults, dislocated workers, and targeted populations.

WIA Title I is also the nation's central job training legislation, providing funds for traditional, onthe- job, customized, and other forms of training to individuals unable to obtain or retain employment through other services.

The American Recovery and Reinvestment Act of 2009 (P.L. 111-5, known as ARRA or the 2009 stimulus package), as amended, contains several provisions related to unemployment benefits. ARRA provisions affect unemployment income support as well as health insurance (COBRA and HCTC) programs.



Date of Report: July 9, 2010
Number of Pages: 19
Order Number: RL34251
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Friday, July 16, 2010

National Flood Insurance Program: Background, Challenges, and Financial Status


Rawle O. King
Analyst in Financial Economics and Risk Assessment


In 1968, the U.S. Congress established the National Flood Insurance Program (NFIP) to address the nation's flood exposure and challenges inherent in financing and managing flood risks in the private sector. Private insurance companies at the time claimed that the flood peril was uninsurable and, therefore, could not be underwritten in the private insurance market. A threeprong floodplain management and insurance program was created to (1) identify areas across the nation most at risk of flooding; (2) minimize the economic impact of flooding events through floodplain management ordinances; and (3) provide flood insurance to individuals and businesses. Major changes were made to the program in 1973, 1994, and 2004.

The NFIP was self-supporting from 1986 until 2005 as policy premiums and fees covered all expenses and claim payments. In 2005, the NFIP incurred approximately $17 billion in flood claims caused by Hurricanes Katrina, Rita, and Wilma. This amount exceeded the $2.2 billion in annual premiums and the $1.5 billion in borrowing authority from the U.S. Treasury. As a result, Congress passed and the President signed into law legislation to increase NFIP borrowing authority first to $3.5 billion (P.L. 109-65) and then to $18.5 billion (P.L. 109-106) in November 2005, and finally to $20.775 billion (P.L. 109-208) on March 23, 2006. As of March 31, 2010, the outstanding debt and accrued interest cost stood at $18.75 billion. Under current law, the funds borrowed from the U.S. Treasury must be repaid with interest. The program, however, is not in a position to repay the debt.

The 111th Congress has acted to ensure that basic NFIP authorities remain in force while the debate continues on reform proposals. On May 31, 2010, however, FEMA's authority to issue or renew flood insurance policies or to increase coverage on existing policies under the NFIP lapsed for the third time this year. On July 2, 2010, President Barack Obama signed into law H.R. 5569, the National Flood Insurance Program Extension Act, to retroactively reauthorize the program from June 1, 2010, through September 30, 2010 (P.L. 111-196). Although FEMA is now authorized to issue new policies and pay claims, concerns remain about the possibility of yet another lapse in authority after September 30, 2010.

Meanwhile, on May 26, 2010, the House Committee on Financial Services reported H.R. 5114, the Flood Insurance Reform Priorities Act of 2010, to reauthorize the NFIP through FY2015 and to make certain reforms to the program. These reforms include (1) a phase-in of actuarial rates for non-residential properties and non-primary residences; (2) a delay in the effective date for the mandatory purchase of flood insurance for certain areas not previously designated as having a special flood hazard; (3) a five-year phase-in of flood insurance rates for newly mapped areas not previously designated as having special flood hazard; (4) an increase in the annual limitation on premium increases; (5) the establishment of the Office of Flood Insurance Advocate; and (6) commission of several studies on expanding mandatory flood insurance purchase requirements for low-income families, and building codes. A vote on H.R. 5114 is expected in the House of Representatives in mid-July 2010. There is no similar measure in the Senate.

Several other flood insurance-related bills are currently before the 111th Congress: H.R. 1264 would add wind coverage to the NFIP; H.R. 777 would suspend flood map changes until the Administrator of FEMA submits to Congress a community outreach plan
.


Date of Report: July 9, 2010
Number of Pages: 27
Order Number: R40650
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Small Business Administration HUBZone Program


Robert Jay Dilger
Senior Specialist in American National Government


The Small Business Administration (SBA) administers several programs to support small businesses, including the Historically Underutilized Business Zone Empowerment Contracting (HUBZone) program. The HUBZone program is a small business federal contracting assistance program "whose primary objective is job creation and increasing capital investment in distressed communities." It provides participating small businesses located in areas with low income, high poverty rates, or high unemployment rates with contracting opportunities in the form of "setasides," sole-source awards, and price-evaluation preferences.

In FY2009, the federal government awarded contracts valued at $13.1 billion to HUBZone certified businesses, with $3.4 billion of that amount awarded through the HUBZone program. The program's total administrative cost is an estimated $11.7 million. In FY2010, it received an appropriation of $2.2 million, with the additional cost of administering the program provided by the SBA's appropriation for general administrative expenses.

Congressional interest in the HUBZone program has increased in recent years, primarily due to U.S. Government Accountability Office reports of fraud in the program. Some Members have called for the program's termination. Others have recommended that the SBA continue its efforts to improve its administration of the program, especially its efforts to prevent fraud.

This report examines the arguments presented both for and against targeting assistance to geographic areas with specified characteristics, such as low income, high poverty, or high unemployment, as opposed to providing assistance to people or businesses with specified characteristics. It then assesses the arguments presented both for and against the creation and continuation of the HUBZone program, starting with the arguments presented during consideration of P.L. 105-135, the HUBZone Act of 1997 (Title VI of the Small Business Reauthorization Act of 1997), which authorized the program.

The report also discusses the HUBZone program's structure and operation, focusing on the definitions of HUBZone areas and HUBZone small businesses and the program's performance relative to federal contracting goals. The report concludes with an analysis of the (1) SBA's administration of the program, (2) SBA's performance measures, (3) potential consequences of a recent U.S. Court of Federal Claims ruling that federal contract set-asides for HUBZone small businesses have precedence over those for the SBA's 8(a) program small businesses when two or more federal contract set-aside programs could potentially be used, and (4) potential effect of the 2010 decennial census on which areas qualify as a HUBZone.

Several bills are also discussed, including S. 3020, the HUBZone Improvement Act of 2010, which would require the SBA to implement several GAO recommendations designed to improve the SBA's administration of the program and extend for three years HUBZone eligibility for firms that lose their HUBZone eligibility due to the release of 2010 decennial census economic data. Also, S. 3190, the Small Business Programs Parity Act of 2010; S. 1489, the Small Business Contracting Programs Parity Act of 2009; H.R. 3729, a bill to amend Section 31 of the Small Business Act, and S.Amdt. 4407, an amendment in the nature of a substitute for H.R. 5297, the Small Business Lending Fund Act of 2010, are examined. They would amend the Small Business Act to create parity for the HUBZone program and other small business contracting programs.



Date of Report: July 8, 2010
Number of Pages: 30
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Small Business Administration 504/CDC Loan Guaranty Program


Robert Jay Dilger
Senior Specialist in American National Government


The Small Business Administration (SBA) administers programs to support small businesses, including several loan guaranty programs designed to encourage lenders to provide loans to small businesses "that might not otherwise obtain financing on reasonable terms and conditions." The SBA's 504 Certified Development Company (504/CDC) loan guaranty program is administered through non-profit Certified Development Companies (CDC). It provides long-term fixed rate financing for major fixed assets, such as land, buildings, equipment, and machinery. Of the total project costs, a third-party lender must provide at least 50% of the financing, the CDC provides up to 40% of the financing through a 100% SBA-guaranteed debenture, and the applicant provides at least 10% of the financing. It is named from Section 504 of the Small Business Investment Act of 1958 (P.L. 85-699, as amended), which authorized the program. In FY2009, the SBA funded 6,293 504/CDC loans amounting to about $3.8 billion.

Congressional interest in the 504/CDC program has increased in recent years because of increased concern that small businesses might be prevented from accessing sufficient capital to assist in the economic recovery. Some Members have proposed to amend the 504/CDC program in an effort to increase the number, and amount, of 504/CDC loans. These proposals include increasing the program's current loan guaranty limit of $2 million for regular projects and $4 million for manufacturing projects; expanding the eligible uses for the loan proceeds; and continuing the subsidization of the program's third-party participation fee and CDC processing fee, which were initially enacted on a temporary basis under P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), and expired on May 31, 2010.

This report opens with a discussion of the rationale provided for the 504/CDC program, the program's borrower and lender eligibility standards, program requirements, and program statistics, including loan volume, loss rates, use of the proceeds, borrower satisfaction, and borrower demographics.

It then examines previous congressional action taken to enhance small business access to capital, including the temporary subsidization of 504/CDC program's third-party participation fee and CDC processing fee. It also examines issues raised concerning the SBA's administration of the program, including the oversight of 504/CDC lenders.

The report concludes with an assessment of the Obama Administration's proposals and pending legislation, which would authorize changes to the 504/CDC program that are designed to enhance small business access to capital and extend the temporary subsidization of the 504/CDC program's third-party participation fee and CDC processing fee, including H.R. 3854, the Small Business Financing and Investment Act of 2009; S. 2869, the Small Business Job Creation and Access to Capital Act of 2009; and S.Amdt. 4407, an amendment in the nature of a substitute for H.R. 5297, the Small Business Lending Fund Act of 2010, which is currently being considered in the Senate
.


Date of Report: July 9, 2010
Number of Pages: 27
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