Over the weekend President Trump signed four executive actions related to COVID-19, as the Administration and Congressional leaders remain gridlocked over a potential fourth piece of COVID-19 relief or recovery legislation. NTU Foundation’s Joe Bishop-Henchman wrote an analysis asking significant questions about one action, a temporary suspension of the payroll tax, while NTU and a coalition of good-government groups raised objections to a second action, the Administration’s attempt to unilaterally extend federal unemployment benefits.
Now that the unemployment insurance (UI) Memorandum has been released, a more thorough analysis is in order. Unfortunately, a closer reading of the UI Memorandum does little to assuage concerns for taxpayers at both the federal and state levels.
Federal Assistance Violates Congressional Primacy Over Federal Tax Dollars
The Administration’s provision of federal assistance to UI beneficiaries - at a level of $300 per week through as late as December 27 - relies on two sections of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act), but uses novel, expansive, and controversial interpretations of the flexibilities and privileges afforded the executive branch in that Act.
The President’s Memorandum to Executive Branch officials argues that the $300 per week benefit can be provided through the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund (DRF), and suggests that it falls under FEMA’s umbrella of Category B “Emergency Protective Measures” under Section 403 of the Stafford Act (42 U.S.C. 5170b).
FEMA’s latest Public Assistance Program and Policy Guide, effective June 1, 2020, includes 28 pages of Category B Emergency Protective Measures eligible for FEMA assistance, across 24 distinct categories. Eligible expenses range from flood fighting to hazardous material removal to meals and medical care to mosquito abatement. Nowhere in those 28 pages does FEMA suggest the provision of UI is an eligible Emergency Protective Measure. In fact, the statutory language in Section 403 says that agencies may “provide assistance essential to meeting immediate threats to life and property resulting from a major disaster.” While the federal UI benefits passed in the CARES Act have certainly helped individuals meet necessary expenses, it is a stretch to characterize the expiration of a financial benefit created just four months ago as “essential to meeting immediate threats to life and property.” Under this interpretation just about any CARES Act program would be eligible for a unilateral executive extension or expansion, including the $1,200 direct payments and the Paycheck Protection Program. This would theoretically allow the President to spend hundreds of billions of dollars outside of Congressional intent, a clear violation of the constitutional “power of the purse” (more on that below).
The Memorandum further states that the President is authorized to provide this UI assistance “in accordance with section 408(e)(2) of the Stafford Act (42 U.S.C. 5174(e)(2)).” The precise statutory language in Sec. 408(e)(2) is as follows:
(2) PERSONAL PROPERTY, TRANSPORTATION, AND OTHER EXPENSES.—The President, in consultation with the Governor of a State, may provide financial assistance under this section to an individual or household described in paragraph (1) to address personal property, transportation, and other necessary expenses or serious needs resulting from the major disaster.
While the statutory language could be broad enough for the President to offer an expansive interpretation of “financial assistance” for “necessary expenses or serious needs,” the Memorandum here runs contrary to the Administration’s broad deregulatory focus and to recent legislative and regulatory interpretations of Sec. 408(e)(2).
Just last year, FEMA rejected comments on a proposed rule suggesting that the agency should expand its treatment of Sec. 408(e)(2) financial assistance to “pre-disaster moving and storage,” a much smaller expense than the UI expansion than sought here. Legislation in 2019 proposed adding certain flood insurance premiums in West Virginia to the list of eligible Sec. 408(e)(2) financial assistance, and legislation in 2010 suggested adding child care expenses. Neither of these proposals - both introduced by Democratic lawmakers - come close to matching the scale and the scope of the President’s Sec. 408(e)(2) proposal issued this weekend.
Ironically, the Stafford Act does include an entire section on unemployment assistance (Sec. 410), but not in the context of the recent Memorandum. Instead Sec. 410 assistance is limited to individuals “not entitled to any other unemployment compensation.” In other words, under Section 410 a President would only be authorized to assist individuals who are not receiving any other state or federal unemployment benefits.
Beyond the Administration’s interpretation of Secs. 403 and 408 of the Stafford Act, the Memorandum runs contrary to two inherent taxpayer interests: 1) the fiscal stability of the Disaster Relief Fund (DRF), especially in the middle of a hurricane season; and 2) Congressional power over the nation’s “purse strings” (i.e., federal tax dollars).
The President is proposing that up to $44 billion from the DRF be made available for a federal UI benefit. For context, this is almost four times the average annual Congressional appropriation made to the DRF from fiscal year (FY) 2004 through FY 2019 ($12.541 billion). While the DRF currently has a balance of more than $70 billion, thanks in large part to the CARES Act, depleting that balance in the middle of a global pandemic and a hurricane season is a risky gambit for inherently limited tax dollars. The President proposes leaving $25 billion in the DRF for “ongoing disaster response,” but two recently devastating hurricane seasons (2005 and 2018) required DRF appropriations in significant excess of $25 billion ($45.011 billion in FY2018, after Hurricanes Florence and Michael; $68.427 billion in FY2005, after Hurricane Katrina).
What happens if the DRF balance is depleted to $25 billion and a major hurricane requires DRF funding in excess of $25 billion? The President and FEMA will need to ask Congress for more assistance, and taxpayers will be asked to make up the difference. This also enhances the risk for further waste of taxpayer dollars, since many supplemental disaster relief bills come with superfluous spending. Though Congress is ultimately responsible for decision-making on spending (and not the executive branch), lawmakers should take care that future disaster bills avoid this waste.
Further, as mentioned above, it is Congress and not the executive branch that ultimately holds the constitutional power of the purse. This is fundamental to the operations of the legislative branch in general, and to the House of Representatives in particular - the branch and chamber, respectively, that are most frequently and directly accountable to voters. As James Madison explained in Federalist No. 58 (emphasis ours):
The House of Representatives cannot only refuse, but they alone can propose, the supplies requisite for the support of government. They, in a word, hold the purse that powerful instrument by which we behold, in the history of the British Constitution, an infant and humble representation of the people gradually enlarging the sphere of its activity and importance, and finally reducing, as far as it seems to have wished, all the overgrown prerogatives of the other branches of the government.
In other words, the Congressional power over the purse is a fundamental check on the growth of the executive branch and, in this modern political era, a check on the growth of an unelected and less accountable administrative state. The Presidential Memorandum risks tipping this balance of power, and taxpayers could lose as a result. Even taxpayers who support the Administration should ask what a future president, one who they would oppose, could or would do with this power. Further, going forward Congress should pass robust budget process reforms that help it reclaim its power over the purse after decades of abdication to the executive branch.
State Assistance Provisions Risk State-Level Tax Hikes Down the Road
The statutory requirements of the Stafford Act provide for state cost-sharing of Sec. 408 financial assistance, at a rate of 25 percent. In the President’s UI Memorandum, this translates to $100 per week in enhanced UI benefits for which the state would be responsible. The President proposes that states use “amounts allocated to them out of the CRF [Coronavirus Relief Fund], or other State funding, to provide temporary enhanced financial support to those whose jobs or wages have been adversely affected by COVID-19.”
While funds do remain in the CRF - and this should give Congress pause before allocating hundreds of billions in additional federal dollars to states - these states should not be coerced into spending money pursuant to a Presidential Memorandum they could not anticipate. Notably, this will undercut the argument from the Administration and some members of Congress that states do not need additional funding at this time because of the balance remaining in the CRF.
Even more concerning is the Memorandum’s suggestion that “States should also identify funds to be spent without a Federal match should the total DRF balance deplete to $25 billion.” This suggestion - that States should be prepared to go their own way on the generous UI boost offered first in the CARES Act and then in the Memorandum - could pave the way for tax increases at the state level this fall and winter. While some states would no doubt look to reduce spending on certain programs in order to pay for enhanced UI benefits, other states would no doubt look to tax increases instead. Some states might even offer such measures like a “temporary” tax or fee hike, but history tells us many of these temporary measures stay with a state’s taxpayers for years or decades.
Conclusion: It’s Up to Congress
If the federal UI boost provided by the CARES Act is to be extended, it ultimately must be passed into law by Congress. NTU has offered our thoughts to federal policymakers on the CARES Act UI boost and preferable alternatives regularly over the past few months, and we will continue to do so as Congress debates a new COVID-19 legislative package. The Administration should take a step back, though, and retract its UI Memorandum. An executive branch extension of an expensive and complicated program could have numerous negative consequences for federal and state taxpayers for years to come.