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Tuesday, June 26, 2012

The LIHEAP Formula: Legislative History and Current Law


Libby Perl
Specialist in Housing Policy

The Low Income Home Energy Assistance Program (LIHEAP) provides funds to states, the District of Columbia, U.S. territories and commonwealths, and Indian tribal organizations (collectively referred to as grantees) primarily to help low-income households pay home energy expenses. The LIHEAP statute provides for two types of funding: regular funds (sometimes referred to as block grant funds) and emergency contingency funds. Regular funds are allocated to grantees based on a formula, while contingency funds may be released to one or more grantees at the discretion of the Secretary of the Department of Health and Human Services based on emergency need.

Regular LIHEAP funds are allocated to the states according to a formula that has a long and complicated history. (Tribes receive funds based on either their number of federally eligible LIHEAP households compared to the total number in the state or on agreements with their states, whereas territories receive a set percentage of total LIHEAP regular funds.) In 1980, Congress created the predecessor program to LIHEAP, the Low Income Energy Assistance Program (LIEAP), as part of the Crude Oil Windfall Profits Tax Act (P.L. 96-223). Because Congress was particularly concerned with the high costs of heating, funds under LIEAP were distributed according to a multi-step formula that benefitted cold-weather states. In 1981, Congress enacted LIHEAP as part of the Omnibus Budget Reconciliation Act (P.L. 97-35), replacing LIEAP. However, the LIHEAP statute specified that states would continue to receive the same percentage of regular funds that they did under the LIEAP formula.

When Congress reauthorized LIHEAP in 1984 as part of the Human Services Reauthorization Act (P.L. 98-558), it changed the program’s formula by requiring the use of more recent population and energy data and requiring that HHS consider both heating and cooling costs of low-income households (a change from the focus on the heating needs of all households). The effect of these changes meant that, in general, funds would be shifted from cold-weather states to warm-weather states. To prevent a dramatic shift of funds, Congress added two “hold-harmless” provisions to the formula. The result of these provisions is a current law, three-tiered formula (sometimes referred to as the “new” formula), the application of which depends on the amount of regular funds that Congress appropriates.

The Tier I formula is used to allocate funds when the total LIHEAP regular fund appropriation is less than or equal to the equivalent of a hypothetical FY1984 appropriation of $1.975 billion. Above this level, funds are allocated according to Tier II of the formula, which includes a holdharmless level to prevent certain states from losing LIHEAP funds. Finally, Tier III applies to appropriations at or above $2.25 billion, and includes a second hold-harmless provision, the holdharmless rate. Since FY1986, LIHEAP regular fund appropriations have exceeded the equivalent of an FY1984 appropriation of $1.975 billion in FY2006, when the regular fund appropriation was $2.48 billion; in FY2008, when appropriations slightly exceeded the trigger; in FY2009 through FY2011, when Congress directed that $840 million be distributed according to the “new” LIHEAP formula; and in FY2012, when Congress directed that $497 million be distributed according to the “new” formula.

This report will be updated when new formula data are released and when proposed funding levels change. See Appendix C for FY2013 estimated allocations at the President’s request level and the level in the Senate Appropriations Committee-passed bill, S. 3295.



Date of Report: June 18, 2012
Number of Pages: 38
Order Number: RL33275
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Community Services Block Grants (CSBG): Background and Funding


Karen Spar
Specialist in Domestic Social Policy and Division Research Coordinator

Community Services Block Grants (CSBG) provide federal funds to states, territories, and tribes for distribution to local agencies to support a wide range of community-based activities to reduce poverty. Smaller related programs—Community Economic Development (CED), Rural Community Facilities (RCF), and Individual Development Accounts (IDAs)—also support antipoverty efforts. CSBG and some of these related activities trace their roots to the War on Poverty, launched in the 1960s. Today, they are administered at the federal level by the Department of Health and Human Services (HHS).

CSBG and related activities are funded in FY2012 under the Consolidated Appropriations Act (P.L. 112-74), at a combined level of $732 million. This includes $677 million for CSBG, $30 million for CED (of which up to $10 million may be used for the Administration’s Healthy Foods Financing Initiative), $5 million for RCF, and $20 million for IDAs.

President Obama submitted his FY2013 budget to Congress in February, requesting total funding of $400 million for CSBG and related activities. This includes a sharp drop in funding for the block grant from its FY2012 level of $677 million to $350 million in FY2013. Budget documents characterize this proposal as one of several “tough cuts to worthy programs” necessary to offset other spending increases in HHS. The Administration offered a similar request last year, which Congress rejected. In last year’s budget, the Administration signaled its intent to move CSBG toward a competitive program, in which states would award block grant funds among local agencies competitively, rather than via the mandatory pass-through to designated “eligible entities” contained in current law. The Administration’s latest budget documents clarify this intent. The FY2013 budget states that HHS will work with Congress to develop “core” federal standards, to be augmented by the states, which would be used to measure performance of local agencies. If an existing eligible entity failed to meet the standards, the state would immediately conduct an open competition to replace that entity in serving the affected community. No action has occurred on this proposal.

The Senate Appropriations Committee on June 14 reported a FY2013 appropriations bill for HHS (S. 3295), which would maintain CSBG at its current level of $677 million. The bill also would provide level funding for CED ($30 million, with up to $10 million available for the Healthy Foods Financing Initiative), increase RCF to $6 million, and provide level funding for IDAs ($20 million).

The National Association for State Community Services Programs conducts an annual survey of states on the activities and expenditures of the nationwide network of more than 1,000 CSBG grantees. According to the most recent survey, the network served more than 20 million people in more than 8 million low-income families in FY2010. States reported that the network spent $16.2 billion of federal, state, local, and private resources, of which $653 million were regular federal CSBG funds and $811 million came from a one-time appropriation to CSBG under the American Recovery and Reinvestment Act (ARRA). In FY2010, the network spent almost $9.1 billion from other federal programs, plus $2.1 billion provided to other federal programs by ARRA.

The Community Services Block Grant Act was last reauthorized in 1998 by P.L. 105-285. The authorization of appropriations for CSBG and most related programs expired in FY2003, although Congress has continued to fund these programs through the annual appropriations process. No legislation to reauthorize CSBG has been introduced since the 109th Congress.



Date of Report: June 21, 2012
Number of Pages: 32
Order Number: RL32872
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Tax-Exempt Bonds: A Description of State and Local Government Debt


Steven Maguire
Specialist in Public Finance

This report provides information about state and local government debt. State and local governments often issue debt instruments in exchange for the use of individuals’ and businesses’ savings. This debt obligates state and local governments to make interest payments for the use of these savings and to repay, at some time in the future, the amount borrowed. State and local governments finance capital facilities with debt rather than out of current tax revenue in order to match the time pattern of benefits from these capital facilities with the time pattern of tax payments.

The federal government subsidizes the cost of most state and local debt by excluding the interest income from federal income taxation. This tax exemption of interest income is granted because it is believed that state and local capital facilities will be under provided if state and local taxpayers have to pay the full cost. The federal government also provides a tax preference through tax credit bonds (TCBs). With TCBs, the federal government either provides investors with a federal tax credit in lieu of interest payments or a direct payment to the issuer. Qualified Zone Academy Bonds and Build America Bonds are examples. For more on TCBs, see CRS Report R40523, Tax Credit Bonds: Overview and Analysis, by Steven Maguire.

State and local debt is issued as bonds, to be repaid over a period of time greater than one year and perhaps exceeding 20 years, and as notes, to be repaid within one year. General obligation bonds are secured by the promise to repay with general tax revenue, and revenue bonds are secured with the promise to use the stream of revenue generated by the facility built with the bond proceeds. Most debt is issued to finance new capital facilities, but some is issued to refund a prior bond issue (usually to take advantage of lower interest rates). Tax-exempt bonds issued for some activities are classified as governmental bonds and can be issued without federal constraint because most of the benefits from the capital facilities are enjoyed by the general public. Many tax-exempt revenue bonds are issued for activities Congress has classified as private because most of the benefits from the activities appear to be enjoyed by private individuals and businesses. The annual volume of a subset of these tax-exempt private-activity bonds is capped. For more on private activity bonds, see CRS Report RL31457, Private Activity Bonds: An Introduction, by Steven Maguire.

Arbitrage bonds devote a substantial share of the proceeds to the purchase of assets with higher interest rates than that being paid on the tax-exempt bonds. Such arbitrage bonds are not tax exempt because Congress does not want state and local governments to issue tax-exempt bonds and use the proceeds to earn arbitrage profits. The arbitrage profits could substitute for state and local taxes.

One major policy issue in this area is tax reform proposals that would modify the tax treatment of state and local government bonds. Another policy issue is whether constraints should be relaxed on the types of activities, such as infrastructure spending, for which entities can issue tax-exempt debt. The list of activities that classify tax-exempt private-activity bonds—and whether they should be included in the volume cap—is another area of potential change or reform. This report will be updated as new data become available.



Date of Report: June 19, 2012
Number of Pages: 12
Order Number: RL30638
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Right to Work Laws: Legislative Background and Empirical Research


Benjamin Collins
Analyst in Labor Policy

The National Labor Relations Act (NLRA) establishes most private-sector workers’ rights to collectively bargain over wages, benefits, and working conditions. Enacted in 1935, the NLRA also permits collective bargaining contracts between employers and labor organizations that require every individual covered by the collective bargaining contract to pay dues to the negotiating labor organization. These contract provisions are known as union security agreements. Since the NLRA was amended by the Taft-Hartley Act in 1947, individual states have been permitted to supersede the union security provisions of the NLRA by enacting laws that prohibit union security agreements. These state laws are known as right to work (RTW) laws.

Currently, 23 states have RTW laws. Of these, 12 states passed their RTW law prior to 1950 and another six passed them prior to 1960. The two most recent states to adopt RTW laws are Oklahoma (2001) and Indiana (2012). Several other state legislatures are debating RTW laws.

Recent legislative proposals, with substantial numbers of cosponsors, would expand RTW policies nationwide. Advocates of national RTW laws claim that they would enhance personal freedom and employer flexibility. Opponents argue that such laws would weaken workers’ abilities to collectively bargain for more favorable compensation and working conditions. Proposals aiming to expand RTW policies typically strike the provisions of the NLRA that permit union security agreements.

National RTW proposals are often discussed in the context of the economic performance of states that have adopted them. However, research that compares outcomes in RTW and union security states is inconclusive. The recent data trends between RTW and union security states are relatively distinct, but the influence of RTW laws in these trends (if any) is unclear.

  • Unionization rates in RTW states are less than half of what they are in union security states. It is ambiguous what portion of this difference is attributable to RTW laws and what portion is due to diverse preferences among the states regarding unionization. 
  • In the past decade, aggregate employment in RTW states has increased modestly while employment in union security states has declined. It is unclear if this growth is attributable to RTW, other pro-business policies (which tend to be concentrated in RTW states), or other factors. 
  • Wages are lower in RTW states than union security states. Historical research has suggested that RTW laws have little influence on these differences. More contemporary scholarship has come to diverse conclusions, depending on the researchers’ methodology. 
Difficulties associated with rigorously studying the relationships between RTW laws and various outcomes are likely to continue to make it difficult to generate definitive findings about these relationships. As such, the ongoing debate on RTW may be driven by factors other than rigorous empirical evidence.


Date of Report: June 20, 2012
Number of Pages: 17
Order Number: R42575
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Pension Benefit Guaranty Corporation (PBGC): A Fact Sheet


John J. Topoleski
Analyst in Income Security

The Pension Benefit Guaranty Corporation (PBGC) is a federal government agency established in 1974 by the Employee Retirement Income Security Act (ERISA; P.L. 93-406). It was created to protect the pensions of participants and beneficiaries covered by private sector, defined benefit (DB) plans. These pension plans provide a specified monthly benefit at retirement, usually either a percentage of salary or a flat dollar amount multiplied by years of service. Defined contribution plans, such as §401(k) plans, are not insured. The PBGC is chaired by the Secretary of Labor, with the Secretaries of the Treasury and Commerce serving as board members.

The PBGC runs two distinct insurance programs for single-employer and multiemployer plans. Multiemployer plans are collectively bargained plans to which more than one company makes contributions. PBGC maintains separate reserve funds for each program. In FY2011, the PBGC insured about 27,066 DB pension plans covering 44.2 million people. The PBGC paid or owed benefits to 1.5 million people and took in 152 newly terminated pension plans. A firm must be in financial distress to end an underfunded plan. Most workers in single-employer plans taken over by PBGC receive the full benefit earned at the time of termination, but the ceiling on multiemployer plan benefits that could be guaranteed has left almost all of these retirees without full benefit protection.

In the 111th Congress, H.R. 3962, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (P.L. 111-192) provided defined benefit pension plans sponsors some relief from funding requirements. In the 112th Congress, an amendment offered by Senate Majority Leader Harry Reid to S. 1813, Moving Ahead for Progress in the 21st Century (MAP- 21), contains provisions that would address the use of excess defined benefit pension plan assets and the interest rates that defined benefit plans use to value plan liabilities.


Date of Report: June 18, 2012
Number of Pages: 11
Order Number: 95-118
Price: $29.95

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Friday, June 22, 2012

Credit Union Commercial Business Lending: Key Issues for Legislation in the 112th Congress


Darryl E. Getter
Specialist in Financial Economics

Credit unions currently can make loans only to their members, to other credit unions, and to credit union organizations. In addition, there are restrictions in law on their business lending activities from which the credit union industry has long advocated for relief. Specific restrictions on business lending include an aggregate limit on an individual credit union’s member business loan balances and on the amount that can be loaned to one member. Industry spokesmen have argued that easing the restrictions on member business lending could increase the available pool of credit for small businesses. Community bankers argue that raising the business lending cap would allow credit unions to expand beyond their congressionally mandated mission and possibly pose a threat to financial stability.

Legislation has been introduced in the House and Senate to raise the business lending cap for credit unions: H.R. 1418 and S. 2231, which are both titled the Small Business Lending Enhancement Act of 2011. Currently, the business lending cap for a credit union is 1.75 times of its actual net worth or 12.25% of the total assets of the credit union, whichever is less. The legislation would increase the cap to 27.5% of the total assets. A subcommittee of the House Financial Services Committee has held one day of hearings on H.R. 1418.

Although “small business lending” appears in the bill title, the legislation does not contain firm size or loan size restrictions. The Small Business Administration (SBA) defines small-business loans as either commercial real estate or commercial and industrial (C&I) loans that are under $1 million. It also defines a small business as one with fewer than 500 employees. If the bills were enacted as currently written, credit unions would be able to make all C&I loans—those fitting the SBA definition and, in addition, those greater than $1 million. Hence, the legislation would allow credit unions to become larger competitors in the commercial lending market. It would not limit credit unions to making only small-business loans or to targeting their lending to small firms.

Although the legislation would allow credit unions to possibly become important competitors with community banks, the differences in capital regulatory requirements may not necessarily threaten financial market stability or expose the National Credit Union Share Insurance Fund, which is the federal deposit insurance fund for credit unions, to greater default risk. A comparison of capital requirements presented in this report shows that credit unions may hold less capital relative to banks for loans with maturities of five years or less, but they must hold more capital for loans of longer maturities.

Recent evidence pertaining to the demand for small business credit appears to be mixed. Regardless of the current demand for credit, credit unions are likely to be just as cautious as banks when granting commercial loans given the slow pace of the U.S. economic recovery. Tight lending standards are expected to persist until the macroeconomic outlook grows more favorable.



Date of Report: June 20, 2012
Number of Pages: 14
Order Number: R42574
Price: $29.95

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The Consumer Financial Protection Bureau (CFPB): A Legal Analysis


David H. Carpenter
Legislative Attorney

In the wake of the worst U.S. financial crisis since the Great Depression, Congress passed and the President signed into law sweeping reforms of the financial services regulatory system through the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), 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 the Bureau of Consumer Financial Protection (CFPB or Bureau) within the Federal Reserve System (FRS) with rulemaking, enforcement, and supervisory powers over many consumer financial products and services, as well as the entities that sell them. The CFP Act significantly enhances federal consumer protection regulatory authority over nondepository financial institutions, potentially subjecting them to analogous supervisory, examination, and enforcement standards that have been applicable to depository institutions in the past. The act also transfers to the Bureau much of the consumer compliance authority over larger depositories that previously had been held by banking regulators. Additionally, the Bureau acquired the authority to write rules to implement most federal consumer financial protection laws that previously was held by a number of other federal agencies.

Although the powers that the CFPB has at its disposal are largely the same or analogous to those that other federal regulators have held for decades, there is a great deal of uncertainty in how the new agency will exercise these broad and flexible authorities, especially in light of its almost exclusive focus on consumer protection. As a result, the CFP Act has proven to be one of the more controversial portions of the financial reform legislation.

The 112th Congress is actively involved in conducting oversight of the implementation of the CFP Act. Additionally, the 112th Congress has considered a number of bills that would significantly alter the structure of the Bureau. For example, H.R. 2434, the Financial Services and General Government Appropriations Act, 2012, would make the CFPB’s primary funding subject to the traditional appropriations process, and H.R. 1315, the Consumer Financial Protection Safety and Soundness Improvement Act, would convert the CFPB’s leadership structure from a sole directorship to a commission and would allow the newly established Financial Stability Oversight Council (FSOC) to overturn CFPB-issued regulations with a simple majority vote, as opposed to the current super majority requirement. H.R. 2434 was reported favorably out of the House Committee on Appropriations, and H.R. 1315 was referred to the Senate Committee on Banking, Housing, and Urban Affairs after passing the full House by a vote of 241 to 173. Additionally, 44 Senators signed a letter to the President expressing support for the Bureau-related objectives of H.R. 2434 and H.R. 1315.

This report provides an overview of the regulatory structure of consumer finance under existing federal law before the Dodd-Frank Act went into effect and examines arguments for modifying the regime in order to more effectively regulate consumer financial markets. It then analyzes how the CFP Act changes that legal structure, with a focus on the Bureau’s organization; the entities and activities that fall (and do not fall) under the Bureau’s supervisory, enforcement, and rulemaking authorities; the Bureau’s general and specific rulemaking powers and procedures; and the Bureau’s funding.



Date of Report: June 7, 2012
Number of Pages: 30
Order Number: R42572
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