CFA News Update- March 2, 2011
With time set to run out at the end of this week on the Continuing Resolution that is currently funding the federal government, negotiations over the 2011 spending bill are expected to dominate the congressional agenda this week. On the positive side, the threat of an immediate government shut-down appeared to diminish Friday, when House Republican leaders unveiled a two-week CR that included $4 billion in spending cuts but took those cuts from programs that the President had slated for reductions in his 2012 budget. Although they stopped short of accepting the House proposal outright, Senate negotiators called it a positive development and indicated that they were pursuing a similar approach, albeit with a somewhat longer timeframe.
Despite that hopeful sign, a chasm appears to separate longer term Republican and Democratic spending plans, raising questions about whether a compromise on the long-term CR is possible. Republicans got in the first blow in that budget battle, with passage last month of a 2011 CR (H.R. 1) that would cut roughly $62 billion in spending over the remainder of the year, much of it from programs with strong Democratic backing. Although Senate appropriators had not yet revealed details of their own long-term CR, several key Senate leaders called the House bill a non-starter, and President Obama responded to its passage with a veto threat. Meanwhile, when President Obama unveiled his proposed 2012 budget last month, it was dismissed just as quickly by House Republican leaders.
Hanging in the balance in this budget debate is the fate of a number of consumer protection priorities. This issue of the newsletter examines the impact of proposed spending bills on those consumer priorities.
The 2011 Continuing Resolution that passed the House in February would impose debilitating cuts on three agencies with central responsibility for implementing the financial regulatory reforms adopted in the last Congress as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Commodity Futures Trading Commission (CFTC) would see its already meager $168.8 million budget cut by $56.8 million just as it is taking on responsibility for oversight of the vast over-the-counter derivatives market. The Securities and Exchange Commission (SEC) would be subject to a less extreme, but still harmful $41 million cut to its budget, leaving 2011 funding at $1.07 billion. And the Consumer Financial Protection Bureau, which was designed to have stable funding not subject to budget cuts, would see its 2011 start-up funding reduced from $143 million to $80 million.
The proposed cuts for these agencies “made clear that derailing Wall Street reform rather than fiscal responsibility” was uppermost in members’ minds, said CFA Legislative Director Travis Plunkett. Much of the funding for these agencies is not provided by taxpayers, and the cuts are inconsequential in the context of the overall federal budget, he noted. “On the other hand, cuts of that magnitude would severely erode the ability of these agencies to rein in the type of Wall Street and big bank excesses that helped land us in our current fiscal difficulties.”
Because the Federal Reserve and not Congress provides funding for the new consumer agency, “taxpayers won’t pay a dime from their own pockets to support its activities,” Plunkett said, and the proposed cuts to its budget “would not subtract a dime from the deficit. They would take money designated to protect American consumers from financial fraud and leave it instead with the already well-funded Federal Reserve System.” Although the Dodd-Frank Act states explicitly that Congress has no appropriations authority over the fund transfer, “House leaders have ignored the law and are treating CFPB budget as if it is appropriated, taxpayer funds,” he added.
The proposed cuts to the SEC and CFTC are “an invitation to financial disaster,” CFA Director of Investor Protection Barbara Roper said in a press statement when the CR was introduced. Both the SEC and CFTC have been under-funded for decades, she added. “Under-staffed and operating with obsolete technology, they are ill-equipped to meet the challenges of regulating increasingly globalized, democratized, and complex markets.” With the economy still fragile and the agencies taking on important and labor-intensive new responsibilities under Dodd-Frank, “this is no time to further undercut investor confidence by defunding the regulatory agencies investors rely on to ensure that their interests are protected,” she said.
During floor debate, Rep. Barney Frank (D-MA) offered an amendment to try to provide an additional $131 million in funding to the SEC budget, but it was defeated on a 160-270 vote. Meanwhile, CFA and Council of Institutional Investors joined in support of a web-based initiative by Shareowners.org to encourage Americans to write their members of Congress in support of full funding for these agencies. A news release on the effort is available here and the website where individuals can send a letter to their congressional delegation is available here.
All three agencies would receive more generous funding under the President’s proposed 2012 budget. The CFPB would receive $329 million, the CFTC would receive $308 million, with $117 million coming from user fees, and the SEC would receive $1.4 billion. The president’s budget “recognizes the important function that these agencies perform and proposes to provide them with funding that, while far from lavish, would allow them to fulfill their basic market oversight responsibilities,” Plunkett said. And, with the CFPB and SEC budgets already fully funded with no taxpayer impact, the proposal to cover $117 million of the CFTC budget with user fees would eliminate arguments that attempt to justify funding cuts as necessary to restore fiscal responsibility, he said. “Given the vast size of the markets the CFTC regulates and the tiny budget of the agency, user fees could be set at a level so low as to be all but invisible to market participants,” Roper said in a press statement on the President’s budget.
Just months after Congress passed sweeping new food safety legislation, House Republicans voted to impose deep cuts on food safety programs at the Food and Drug Administration (FDA) and the Agriculture Department’s Food Safety and Inspection Services (FSIS). “Our food safety agencies serve a critical public health role. Cutting their budgets can have serious repercussions in their ability to assure our food is safe to eat,” said Christopher Waldrop, Director of CFA’s Food Policy Institute.
The House CR would require FDA to cut $242 million from its budget over the remaining months of 2011. Cuts of that magnitude “would significantly hinder the agency’s ability to do its job, much less implement the new food safety act,” Waldrop said. In contrast, the President’s 2012 budget would boost funding by $382 million over its current level, with $174 million of that increase going to the food program. “The President clearly recognized that FDA should be an exception to budget-cutting,” Waldrop said.
Meanwhile, proposed cuts to FSIS could have a direct impact on consumers in the form of higher food prices, warned Carol Tucker-Foreman, a distinguished fellow at CFA’s Food Policy Institute. Because 80 percent of the division’s budget goes toward salaries, the House Republican proposal to cut $88 million from FSIS between now and the end of fiscal year 2011 would almost certainly “require FSIS to furlough a large number of inspectors,” she said. “Meat and poultry slaughter and processing companies cannot operate without federal inspectors present,” she added. “To inspect the same amount of product with fewer inspectors while protecting against contamination would require companies to work fewer hours and/or slow their line speeds. That would increase costs and likely be passed on to consumers as higher prices.”
The President’s 2012 budget would also cut FSIS, but by a much smaller $7 million. Much of that would come from funds for a catfish inspection program that was required by the 2008 farm bill but hasn’t yet been operationalized.
Both the House-passed CR and the President’s proposed 2012 budget include significant cuts to housing programs that would “make it even harder to serve consumers with the most pressing housing needs,” said CFA Director of Housing Policy Barry Zigas. In particular, he said, proposed cuts in Community Development Block Grants “will hit cities and states hard when they are struggling with their own fiscal crises.”
The House CR would cut 2011 funding for the Department of Housing and Urban Development (HUD) by $5.7 billion or roughly 13 percent, would rescind an additional $394 million in unobligated balances in HUD programs along with all unobligated balances from the stimulus legislation except for those funding unemployment assistance and state fiscal relief, while adding $715 million for rental assistance and $18 million for Federal Housing Authority (FHA) administrative expenses. Community development funds would be cut by more than one-half -- $2.95 below the $4.45 billion appropriated in fiscal year 2010 – with most of the cut coming from Community Development Block Grants. In addition, $175 million would be cut from the HOME housing block grant.
The President’s 2012 budget request also includes significant reductions in some of HUD’s flagship programs. Most notably, Community Development Block Grants are slated for a 7.5 percent cut. Also cut would be funding for Section 202 rental housing for the elderly. On the other hand, the Administration is requesting $1 billion for the National Affordable Housing Trust Fund and increases in funding for programs to end homelessness.
In a move that will be felt by consumers directly, the Administration is also proposing to hike the mortgage insurance premiums for FHA mortgages by one-quarter of a percent. These premiums are paid by consumers. “The increased insurance charges for FHA mortgages will add an additional burden on homebuyers at a time when the housing market remains weak and consumers already face multiple hurdles in trying to obtain affordable mortgage credit,” Zigas said.
Although the House CR would trim rather than slash the budget of the Consumer Product Safety Commission (CPSC), an amendment offered by Rep. Mike Pompeo (R-KS) was adopted on a 234-187 vote prohibiting the use of funds to implement that CPSC’s Consumer Incident Database. Due to go live on March 11, the database is intended to provide a mechanism for consumers both to report harms or risks associated with consumer products and to research risks associated with particular products. It also will help the CPSC to work more efficiently, by giving the agency the ability to identify trends in product hazards much more quickly and efficiently.
The amendment would prevent the CPSC from spending money to work on the database. Because most of the work has already been completed and the project is ready to be launched, however, cutting funding now simply wastes the dollars already spent, a group of national consumer groups pointed out in a letter opposing the amendment. “Without the CPSC database, consumers will remain in the dark about products that harmed other consumers,” said CFA Senior Counsel Rachel Weintraub. “For years, unsafe toys and other consumer products were injuring, sometimes killing, adults, children and infants, but the news about these harmful products was held back for weeks, months, even years ... The amendment serves to maintain the status quo which maintains the secrecy of critical safety information from consumers.”
The CR provides $115 million for CPSC’s 2011 budget, a cut of $2.5 million below its current funding level. The President has proposed $122 million in funding for the agency in 2012.
During floor debate on the 2011 CR, the House voted 244-181 in favor of an amendment to block the Federal Communications Commission from implementing its recently proposed net neutrality rules. The FCC voted to issue the rules in December. The amendment by Rep. Greg Walden (R-OR) would prevent the agency from using agency funds to implement the rules.
The rules are aimed at preventing network providers from discriminating in how they handle network traffic and thus “ensuring that the Internet remains an open, consumer- and citizen-friendly place for communications and commerce,” said CFA Research Director Mark Cooper in a press statement released at the time the rules were issued. Far from being too broad as amendment supporters have claimed, “there are areas where stronger consumer protections are needed,” Cooper said. “CFA views the order as the platform on which those consumer protections can be built and we will work to ensure that consumers get those protections in the arenas where Internet policy is set.”
A group of Democratic senators, led by Sen. John Kerry (D-MA), Chairman of the Senate Commerce Committee, wrote to Senate Majority Leader Harry Reid (D-NV) and Senate Minority Leader Mitch McConnell (R-KY) last week urging them to oppose a similar effort in the Senate.