This Week on the Hill
The Senate convenes this week while the House remains in recess until September 4.
The Senate meets today and will continue consideration of a nomination in the Department of Health and Human Services; this week the chamber will consider 17 nominations, including 12 district court judges. Committees also scheduled hearings this week: the Commerce, Science and Transportation Committee will hold a hearing Tuesday on harmful algal blooms and the Health, Education, Labor and Pensions Committee will hold a hearing Wednesday on oversight of the Food and Drug Administration.
Fiscal Year 2019 Budget Update
Last week the Senate voted 85-7 to approve a spending package (H.R. 6157) covering the Labor-Health and Human Services-Education and Defense spending measures. The $857 billion bill accounts for roughly 60 percent of the total fiscal 2019 appropriations bills. An amendment was adopted to provide the Secretary of Health and Human Services with $1 million to develop regulations that would require drug makers to include pricing information in their advertisements to consumers. Slight increases in funding are provided for the Departments of Health and Human Services and Education compared to fiscal year 2018, while the Labor Department would see a slight decrease. The bill must be conferenced with the House and signed by the President before federal funding expires on September 30 to avoid a lapse in funding, unless a continuing resolution is passed.
IRS Releases Proposed Regulations on Charitable Deductions
On Thursday the Treasury Department and Internal Revenue Service (IRS) issued proposed regulations providing rules on the availability of charitable contribution deductions when the taxpayer receives or expects to receive a corresponding state or local tax credit. The guidance is designed to curb taxpayers' ability to use charitable donations to get around the Tax Cuts and Jobs Act’s $10,000 cap on the state and local tax (SALT) deduction, a strategy that had already been adopted by some states. Under the proposed regulations, a taxpayer who makes payments or transfers property to an entity eligible to receive tax deductible contributions must reduce their charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive. The proposed regulations block these SALT workarounds, while also applying the new limits to pre-existing state tax credit programs, including those used for private school scholarships. A report on state responses to federal tax reform and charitable deductions can be found here. Public comments will be accepted on the proposed regulations for 45 days after publication in the Federal Register.
New Breakdown Shows How States are Spending Election Security Funds
Last Tuesday the U.S. Election Assistance Commission (EAC) released information on how states are planning to spend the $380 million in new Help America Vote Act (HAVA) grants that were appropriated as part of the two-year spending deal in March. According to the EAC, funds will be allocated as follows: 36.3 percent will be spent by 41 states to improve election cybersecurity; 27.8 percent will be spent on the purchase of new voting systems in 34 states; 13.7 percent will be used to improve voter registration systems in 29 states; 5.6 percent will be allocated for post-election audit activities in 24 states; 2.0 percent will be used to improve communications efforts in 18 states; and 14.6 percent will be used for other state-specified activities. A complete listing of state and territory narratives and budgets can be found here.
OMB A-87 Waiver Expiration for Human Services Eligibility Systems
On August 10, 2011, the Department of Health and Human Services and the U.S. Department of Agriculture announced a time-limited exception to OMB Circular A-87 that was later extended through December 31, 2018. The purpose of this waiver was to provide states additional resources and cost allocation flexibility when developing integrated technology systems to help streamline enrollment in human services programs. With the waiver expiring on December 31, 2018, states will need to adhere to cost allocation methodologies when developing integrated technology systems that benefit multiple human services programs. If your state is concerned about the expiration of this waiver, please contact Stacey Mazer.
CMS Sends Letter on Budget Neutrality for Section 1115 Waivers
Last Wednesday the Centers for Medicare and Medicaid Services (CMS) sent a letter to state Medicaid directors describing CMS’s current approach to calculating budget neutrality expenditure limits for Medicaid section 1115 demonstration projects. In response to longstanding concerns raised by the Government Accountability Office (GAO), this letter marks the first time that CMS has formally outlined how states must calculate budget neutrality for demonstration projects, to strengthen fiscal accountability. The letter also announces a new monitoring tool to support a more streamlined and standardized approach to expenditure reporting for Medicaid demonstrations. The letter to state Medicaid directors can be found here.
Administration Releases Proposed Rule to Replace Clean Power Plan
On Tuesday the Environmental Protection Agency (EPA) released a proposed rule to reduce greenhouse gas emissions from existing coal-fired utility generating units and power plants; the proposed rule would replace the Obama administration’s Clean Power Plan. The new rule, named the Affordable Clean Energy (ACE) rule, would establish emission guidelines for states to develop plans to address greenhouse gas emissions from existing coal-fired power plants. The rule also makes significant changes to the New Source Review permitting program. Under current law, power plant operators must get a permit from state regulators before building a new facility or renovating an existing facility that leads to an increase in annual emissions; the proposed rule includes two alternative tests that measure emissions increases on an hourly basis instead. States will have three years to develop state plans and EPA would then have 12 months to act on a complete state plan submittal. A fact sheet on the proposed rule can be found here and the rule text can be found here. Public comments can be submitted for 60 days following publication in the Federal Register.
SEC Adopts Municipal Bond Disclosure Rule
The Securities and Exchange Commission (SEC) recently adopted an amended rule, prompted by a recent increase in states and localities using bank direct placements, that requires brokers, dealers, and municipal securities dealers to disclose two new events that the issuer must provide to the Municipal Securities Rulemaking Board, which brokers or dealers must then provide to bond investors. The rule was proposed unanimously by the SEC Commissioners in March 2017. Bond issuers must comply with the rule within 180 days after it is published in the Federal Register.
Recently Released Reports
Water Infrastructure Financing: History of EPA Appropriations
Congressional Research Service
Tracking Section 1332 State Innovation Waivers
Kaiser Family Foundation
Federal Requirements and State Options: How States Exercise Flexibility under a State Medicaid Plan
Medicaid and CHIP Payment and Access Commission
Economic News
CBO Releases Report on Fiscal Substitution of Investment for Highways
The Congressional Budget Office (CBO) recently released a report that examines the extent that state and local governments reduce highway spending from their own funds as federal grants increase. The report looked at research that found for an increase of $1 in federal grants, state and local governments would reduce spending on highways from their own funds by between $0.20 and $0.80. CBO further examined factors that might influence the substitution effect, such as fiscal constraints and economic conditions of state and local governments, size of federal grant changes and direction of the change in federal grants.