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NAAGazette

Federal Government Action & Spending Affects Attorneys General & State Programs

Blair Tinkle, Association General Counsel and Congressional Liaison

Blair Tinkle, General Counsel to the Association and Congressional Liaison

The ailing economy and attempts at finding solutions to it have set in motion a flurry of federal government action and spending, some of which has affected state Attorneys General and state programs, including crime and drug enforcement and child support enforcement.

Since late 2007, America has faced a deteriorating stock market, higher than average unemployment, a lack of consumer confidence and an overall decline in American industry. This prolonged period of economic decline has led the United States into recession which began in large part with the subprime mortgage crisis. The federal government has responded in several ways to attempt to quell the effects. This has included a $700 billion bank and auto industry bailout termed the “Emergency Economic Stabilization Act” (EESA) which created the Troubled Asset Relief Program (TARP), a $789 billion economic stimulus package termed the “American Recovery and Reinvestment Act”, a potential $75 billion mortgage foreclosure plan proposed by the Obama administration, and a $200 billion supplement for Fannie Mae and Freddie Mac.

President Bush signed TARP into law on Oct. 3, 2008. TARP allows the Department of the Treasury to purchase or insure up to $700 billion of assets deemed troubled. The Treasury can purchase non-liquid, difficult-to-value assets from financial institutions. TARP is intended to increase the liquidity of these assets by purchasing them using secondary market mechanisms, and allowing participating institutions to stabilize their balance sheets and avoid further losses. The first $350 billion of the $700 billion was released on Oct. 3, 2008, and Congress voted to approve the release of the second $350 billion on Jan. 15.

Another substantial congressional move was the $789 billion economic stimulus package, signed into law on Feb. 17 by President Obama. The Act has been described as an attempt to create or save approximately 3.5 million jobs over the next two years in sectors ranging from the clean energy industry to health care. It is also intended to provide nearly $230 billion in tax cuts for the middle class including a “Making Work Pay” tax credit, increased funding for renewable energy research and production as well as tax incentives for renewable energy investors. The Act also provides investments of $17 billion into the public transportation system and high speed rail, $25 billion in school construction bonds and $7 billion in expanded broadband coverage in the United States. In addition, the bill provides $85 billion in the form of a temporary increase in the Federal Medical Assistance Percentage.

The stimulus package also contains provisions expanding state Attorneys General authority with respect to the Health Insurance Portability and Accountability Act of 1996 (HIPAA) (see accompanying article for details), creates funds for child support enforcement for states and gives a one-time boost of monies to the Edward Byrne Justice Assistance Grants (Byrne/JAG) program. Byrne/JAG is currently the only source of funding available for multi-jurisdictional drug enforcement.

The economic stimulus package restored some child support funding lost by the Deficit Reduction Act of 2005. It allows the federal government to restore, on a one-time basis, the matching state expenditures of federal child support incentive payments which in turn allows states and counties to draw down federal incentive matching funds for previous years.

Lastly, the stimulus package included a one-time $2.2 billion boost for Byrne/JAG. The funding is broken down into $2 billion for Byrne/JAG formula grants and $225 million for Byrne competitive grants. Byrne funds were cut by nearly 67 percent in fiscal year 2008 for state and local law enforcement. The recently passed Act restored funding lost in FY 2008 as well as brought Byrne numbers close to their 2001 peak.

For information on the amounts of money states will receive in child support enforcement dollars and Byrne/JAG funds, please contact Bill Malloy, legislative project assistant, at wmalloy@naag.org or 202-326-6045.

Although the immediate future of the economy is uncertain, President Obama has announced the next phase in his economic recovery proposal. On Feb. 18, the president announced a $75 billion program intended to help nine million homeowners avoid foreclosure. This $75 billion would be supplemented by $200 billion in additional funding for Fannie Mae and Freddie Mac to purchase and refinance mortgages. Obama’s plan is funded mostly from the TARP Program. Termed the “Homeowner Affordability and Stability Plan,” it proposes using cost sharing and other incentives to encourage lenders to reduce homeowners’ monthly payments to 31 percent of their monthly income. A lender would be responsible for reducing monthly payments to no more than 38 percent of a borrower’s income, with government sharing the cost to reduce the rate further to 31 percent. The plan also includes the possibility of a lending institution forgiving a portion of the balance of the borrower’s mortgage. Companies that service these mortgages will get incentives to modify loans and to help the homeowner stay current on payments.

Time will tell whether this combination of federal policies will accomplish the goals envisioned by the administration and Congress. NAAG will continue to provide updates in the coming months.

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