Regulatory Update on Executive Actions

Although the House is poised to return early to address issues related to Postal Service funding, Congress is no closer to a deal on a new coronavirus package than it was last week, when the Senate recessed with plans to return in September. However, the creaky wheels of the administrative state have continued to turn in response to President Trump’s early-August executive actions. Here’s an update on those developments.

Homeowner Foreclosures and Renter Evictions

As part of his executive actions earlier this month, President Trump signed an executive order (EO) intended to aid renters and homeowners. The EO directs the Health and Human Services (HHS) Secretary and the Director of the Centers for Disease Control and Prevention (CDC) to “consider” whether additional measures to prevent evictions are “reasonably necessary” to prevent further spread of COVID-19 and directs the Treasury Secretary and the Secretary of Housing and Urban Development (HUD) to identify federal funding, if any, available to help renters and homeowners meet their monthly financial obligations. It also directs the Housing Secretary to “promote the ability of renters and homeowners to avoid eviction or foreclosure.”

In response, HUD has announced plans to extend its moratorium on evictions and foreclosures on properties whose mortgages are backed by the Federal Housing Administration (FHA) through the end of the year. The FHA insures mortgages of low- and moderate-income homeowners. The HUD announcement does not affect mortgages backed by Fannie Mae or Freddie Mac, which constitutes about half of the U.S. residential mortgage market. The HUD announcement thus represents a much narrower fix than the federal moratorium that lapsed in late July.

Payroll Tax Deferral

As part of the executive actions he issued earlier this month, the president announced recently that the Treasury Department would permit employers to defer payment of certain payroll taxes from September 1 until the end of this year. The deferral applies only to workers earning less than $104,000 per year, or less than $2,000 per week. Because Congress must act to change existing tax law, the memorandum directs the Treasury Department to delay its collection of the tax from employers and allows employers to choose whether to continue to collect the tax from employees and hold on to it, or stop collecting it and permit employees to keep it, for now.

The current deferral will turn into a debt owed by employers in a year, and forgiveness of that debt is far from guaranteed. For an employer, for whom that debt may come due, it may make sense to continue to collect the payroll tax from eligible employees during the deferral period. If the employer defers collection of eligible employees’ payroll taxes, the employees themselves are responsible for paying it once it comes due. The “deferral” aspect is necessitated by the fact that this change is being made via executive action rather than an act of Congress, but it substantially complicates the execution of the “tax holiday” President Trump seems to have wanted.

Since it was announced, payroll companies and business groups have said that it will be difficult to implement the deferral, which is supposed to be in place by September 1. Payroll companies will have to recalculate the payroll tax mid-quarter, and the deferral would be applied to some employers and some workers, but not all of them. Employers are still waiting for guidance from the IRS on how to accomplish this, and that guidance seems unlikely to arrive in enough time for employers to be following it by September 1. It’s unclear whether employers are supposed to provide the deferral to all eligible employees or give all eligible employees the option to defer.

President Trump has assured employers that he will forgive the deferred payroll taxes if he is reelected, but he will need corresponding action from Congress to do so.

New Unemployment Benefit

Finally, the president issued a memorandum establishing a new unemployment benefit intended to address the fact that the unemployment benefits in the CARES Act expired July 31. According to the memorandum, the payments would be up to $400 per week if states agree to cover 25 percent, or $100 per person per week. For unemployed people living in a given state to be eligible for this benefit, the state must agree to fund the administration of the program, and recipients must already be receiving at least $100 per week in state-sponsored unemployment benefits.

To cover the $300 per person per week of the federal benefit, the president is taking $44 billion from the Federal Emergency Management Agency (FEMA), using a provision intended to aid in post-disaster recovery. How long these payments will last is unclear because it depends how many states participate in the program. The more states participate, the faster the $44 billion in allocated funds will be exhausted.

Within days of the president’s action, news broke that states would not be required to provide 25% of the unemployment benefit after all, but the additional $100 would not be forthcoming from the federal government, either. Rather, the $400 benefit created in the executive action has been effectively reduced to a $300 benefit, to be funded 100% by FEMA.

Fourteen states (New Mexico, Oklahoma, Utah, Arizona, Michigan, Missouri, Montana, Kentucky, Texas, Colorado, Idaho, Iowa, Louisiana, and Maryland) have already announced plans to provide the $300 weekly federal unemployment benefit. A couple of the states have also announced plans to contribute an extra $100 per person per week, even though they are not legally obligated to do so. Arizona is the only state in which the new federal benefits have been paid out to date. Most are still figuring out how to distribute the benefit to those in need.

States must apply through FEMA for a grant to participate in the program, and each state will be required to pay 25% of the cost of administering the program. As of several days ago, only 18 states had indicated that they would apply for the FEMA grants; another 30 states were still considering whether to participate.

PIA National will continue to provide updates on the implementation of the executive actions as additional information becomes available.