Copyright Act and Communications Act Changes in 2019 Related to Television

Summary: On December 20, 2019, President Donald J. Trump signed the Satellite Television Community Protection and Promotion Act of 2019, and the Television Viewer Protection Act of 2019 (Titles XI and X of Division P, respectively, of the Further Consolidated Appropriations Act, 2020, P.L. 116-94 ). The act permanently extends some legal provisions governing the retransmission of distant network broadcast signals, while repealing others. In addition, the act permanently extends and changes rules for retransmission consent negotiations between television station owners and operators of satellite and cable systems.

Summary: Congress enacted the new laws to prevent the expiration at the end of 2019 of provisions of communications and copyright laws related to the retransmission of broadcast television signals by cable operators, telephone companies (telcos), and satellite operators, pursuant to the STELA Reauthorization Act of 2014 ( P.L. 113-200 ). (STELA stands for the Satellite Television Extension and Localism Act.) Congress had repeatedly reenacted several of these temporary provisions over several decades.

Summary: Copyright Act Provisions

Summary: Generally, copyright owners have exclusive legal rights to license their works. The Copyright Act limits these rights for owners of copyrights to programming carried by retransmitted broadcast television signals. The act provides for statutory licenses that allow cable, telco, and satellite operators to retransmit television broadcast station signals under certain circumstances, even if one or more owners of the copyrights to the programs carried by those signals do not agree. Section 119 of the Copyright Act, which was due to expire at the end of 2019, allows satellite operators to avoid negotiating with copyright holders of programming that they transmit from outside a subscriber's local area and instead pay a royalty fee to the U.S. Copyright Office. The Copyright Office in turn pays the rights holders. The Satellite Television Community Protection and Promotion Act of 2019 permanently extends Section 119 of the Copyright Act, but limits the types of "unserved households" eligible to receive the distant signals. It also requires DIRECTV, a satellite operator, to retransmit local broadcast signals in all 210 U.S. television markets in order to continue using the compulsory copyright license described in this section.

Summary: Communications Act Provisions

Summary: Generally, commercial broadcast television stations may either require cable, telco, and satellite operators to carry their signals within the stations' local markets for no fee or demand that the operators negotiate for the right to retransmit the stations' signals within those markets in exchange for a fee. The Television Viewer Protection Act of 2019 made permanent three provisions of the Communications Act. One of the newly permanent provisions permits a satellite operator to retransmit broadcast station signals outside of the stations' local markets without the consent of those stations, if the satellite operator is retransmitting the signals pursuant to Section 119 of the Copyright Act. A second prohibits broadcast stations from entering into exclusive contracts with cable, satellite, or telco operators.

Summary: The third newly permanent provision of the Communications Act requires all parties to negotiate retransmission consent in "good faith" and assigns the Federal Communications Commission (FCC) a mediation role in the event any party accuses another of failing to negotiate in good faith. However, the act specifies that collective negotiation by smaller cable, telco, and/or satellite operators with large station group owners is not a violation of good faith. On the other hand, the Communications Act specifies that joint retransmission consent negotiations by separately owned (as defined by the FCC) broadcasters within the same market is a violation of good faith. In December 2019, the FCC reinstated rules related to the enforcement of its local ownership limits. If a television company that owns a station in a market sells advertising for another station in the same market under an agreement with that station's owner, the FCC attributes ownership of both stations to that company.

The retransmission of television signals to subscribers of cable, telephone company (telco), and satellite services has been governed in part by the Satellite Television Extension and Localism Act Reauthorization Act of 2014 (STELA Reauthorization Act; P.L. 113-200 ). Some provisions of this law, which amended the Copyright Act of 1976 and the Communications Act of 1934, were set to expire at the end of 2019. As described in " Legislation ," with the enactment of the Satellite Television Community Protection and Promotion Act of 2019, and the Television Viewer Protection Act of 2019 (Titles XI and X of Division P, respectively, of the Further Consolidated Appropriations Act, 2020 P.L. 116-94 ), Congress permanently extended certain Copyright Act and Communications Act provisions that affect direct broadcast satellite service to viewers in rural areas; limited the ability of separately owned broadcast stations to jointly negotiate with cable and satellite operators over the retransmission of television signals; and affirmed the role of the Federal Communications Commission (FCC) in resolving disputes that could potentially interrupt television service to subscribers of cable, telephone, and satellite services.

In addition, Congress amended the Copyright Act to restrict the number of households eligible to receive non-local broadcast television signals via satellite distributors, and encouraged DIRECTV, a satellite operator, to retransmit local broadcast television signals, where available, in all local television markets. Congress amended the Communications Act to permit small video programming service distributors to negotiate collectively with large broadcast station groups, and increase transparency in bills for new customers of video distribution services.

To provide context for the current debate, this report provides background information about how households receive television programming, how the television industry operates, and how the Copyright and Communications Acts determine what programs viewers receive. After describing the now-repealed provisions of the copyright act, the report summarizes the provisions of the Copyright and Communications Act enacted by Congress in 2019. Finally, it addresses the relationship between the new provisions and FCC media ownership rules, which the FCC amended in December 2019.

A household may receive broadcast television programming through one or more of three methods:

1. by using an individual antenna that receives broadcast signals directly over the air from television stations; 2. by subscribing to a multichannel video programming distributor (MVPD), such as a cable or satellite provider or a telco, which brings the retransmitted signals of broadcast stations to a home through a copper wire, a fiber-optic cable, or a satellite dish installed on the premises; or 3. by using a high-speed internet (broadband) connection. A household may subscribe to a streaming service either that includes broadcast television programming on an on-demand basis, or as a package of prescheduled programming, that is, a "virtual MVPD" (vMVPD).

As Figure 1 indicates, the total number of U.S. households subscribing to an MVPD has declined over the past 10 years. In 2010, about 104.2 million households subscribed to an MVPD, compared with about 87.4 million households in 2019. In place of MVPDs, an increasing number of households rely on video provided over broadband connections (including vMVPDs) or via over-the-air broadcast transmission.

Currently, two direct broadcast satellite providersâDIRECTV and DISHâoffer video service to most of the land area and population of the United States. As of June 2019, DIRECTV had approximately 17.4 million U.S. subscribers, while DISH had approximately 9.5 million U.S. subscribers. Both have lost subscribers since September 2014, when DIRECTV had approximately 20.2 million U.S. subscribers and DISH had approximately 14.0 million U.S. subscribers.

Federal Communications Commission Licensing and Localism

The FCC licenses broadcast television station owners for eight-year terms to use the public airwaves, or spectrum, in exchange for operating stations in "the public interest, convenience and necessity," pursuant to Section 310(d) of the Communications Act. In 1952, the FCC formally allocated television broadcast frequencies among local communities. The basic purpose of the allocation plan was to provide as many communities as possible with sufficient spectrum to permit one or more local television stations "to serve as media for local self-expression."

Television Communities vs. Local Television Markets

Until the mid-1960s, the television audience research firm the Nielsen Company restricted its measurement of television station viewership to the major metropolitan areas that were the first to have broadcast television stations. Among other factors, the station considers the estimated number of viewers it attracts with programs when determining the prices that it can charge advertisers. Thus, station viewership plays a significant role in a station's ability to generate revenue. After hearings in the House of Representatives produced accusations that stations licensed to large cities were pressuring the rating services not to measure audiences of stations licensed to smaller cities, Nielsen began to assign each U.S. county to a unique geographic television market in which Nielsen could measure viewing habits. Nielsen's construct, known as Designated Market Areas (DMAs), has been widely used to define local television markets since the late 1960s. The definitions of DMAs are important in determining which television broadcast signals an MVPD subscriber may watch.

Nielsen generally assigns each county to one of 210 DMAs based on the predominance of viewing of broadcast television stations in that county. In addition, Nielsen assigns each broadcast television station to a DMA. Nielsen bases each station's DMA on the home county of its FCC community of license. Stations seek to have their signals reach as many people as possible living within their DMAs. They generally have little incentive to reach viewers living outside their DMAs, as they are typically unable to charge advertisers for access to those viewers.

Broadcast stations' contractual agreements with television networks and other suppliers of programming generally give them the exclusive rights to air that programming within their DMAs. Advertisers use DMAs to measure television audiences and to plan and purchase advertising from stations to target viewers within those geographic regions.

Retransmission of Broadcast Signals via MVPDs

Figure 2 illustrates the relationships among viewers; broadcast television stations; cable, telco, and satellite operators; cable and broadcast networks; and owners of television programming content.

Generally, subscribers to cable, telco, and satellite services may receive television stations located within their DMAs as part of their video packages. Whether or not subscribers do so, however, depends in part on the decisions of broadcast stations to require these services to retransmit their signals or to opt instead to negotiate for compensation. In addition, satellite operators may choose not to provide any local broadcast service in a particular DMA. The Communications Act gives broadcast stations and satellite operators the rights to make these choices.

Every three years, commercial broadcast television stations may choose to require cable, telco, and satellite operators to retransmit their signals. By statute, a cable operator or telco must carry the signals of all television stations seeking "must carry" status and assigned to the DMA in which the cable operator is located. Satellite operators are required to carry the signals of all stations assigned to a DMA that seek must carry status to viewers in that DMA, if they choose to carry the signal of at least one local television station in the market. Policymakers often call this provision "carry one, carry all." The applicability of these provisions to telcos is uncertain.

Due in part to the carry one, carry all provision, DIRECTV has opted not to retransmit any local broadcast television stations in 12 DMAs. They are Alpena, MI; Bowling Green, KY; Caspar-Riverton, WY; Cheyenne, WY/Scottsbluff, NE; Grand Junction, CO; Glendive, MT; Helena, MT; North Platte, NE; Ottumwa, IA; Presque Isle, ME; San Angelo, TX; and Victoria, TX.

In lieu of choosing must carry status, commercial broadcasting stations may opt to seek compensation from cable, telco, and satellite operators for carriage of their signals in exchange for granting retransmission consent. In contrast to the must carry laws, which differ for cable and satellite operators, the retransmission consent laws apply to all MVPDs.

If a broadcast station opts for retransmission consent negotiations, MVPDs must negotiate with it for the right to retransmit its signal within the station's DMA. In addition, cable operators may negotiate with the station for consent to retransmit the station's signals outside of the station's DMA. However, the contracts that broadcast stations have with program suppliers, such as television networks, may limit the stations' ability to consent to the retransmission of their signals outside of their markets. Most television broadcast stations are part of a portfolio owned by broadcast station groups. Most cable systems are part of multiple-system operations owned by corporations. Negotiations over retransmission consent generally occur at the corporate level, rather than between an individual station and a local cable system.

Greater competition among MVPDs has increased the negotiating advantage of broadcast television stations since 1993, when they first had the right to engage in retransmission consent negotiations. At that time, large MVPDs refused to pay broadcast stations directly for retransmission rights. Instead, several broadcast networks negotiated on behalf of their affiliates for alternative forms of compensation. The networks sought carriage of new cable networks owned by their parent companies, and split the proceeds they received from the cable networks with the affiliates.

As satellite operators and telcos entered the market in competition with cable operators, broadcast stations could encourage the cable subscribers to switch, and vice versa. Broadcast stations began to demand cash in exchange for carriage. As Figure 3 indicates, the total amount of retransmission fees paid by MVPDs has increased from $0.21 billion in 2006 to $12.38 billion in 2019. The 2019 totals include fees paid by vMVPDs, which did not exist in 2006.

Generally, copyright owners have the exclusive legal right to "perform" publicly their works, and, as is the case with online distribution of their programs, to license their works to distributors in marketplace negotiations. The Copyright Act limits these rights for owners of programming contained in retransmitted broadcast television signals. The Copyright Act guarantees MVPDs the right to perform publicly the copyrighted broadcast television programming, as long as they abide by FCC regulations and pay royalties to content owners at rates set and administered by the government. In some instances, MVPDs need not pay content owners at all, because Congress set a rate of $0.

The Copyright Act contains three statutory copyright licenses governing the retransmission of local and distant television broadcast station signals. Local signals are broadcast signals retransmitted by MVPDs within the local market of the subscriber ("local-into-local service"). Distant signals are broadcast signals imported by MVPDs from outside a subscriber's local area.

1. The cable statutory license, codified in Section 111, permits cable operators to retransmit both local and distant television station signals. This license relies in part on former and current FCC rules and regulations as the basis upon which a cable operator may transmit distant broadcast signals. 2. The local satellite statutory license, codified in Section 122, permits satellite operators to retransmit local signals on a royalty-free basis. To use this license, satellite operators must comply with the rules, regulations, and authorizations established by the FCC governing the carriage of local television signals. 3. The distant satellite statutory license, codified in Section 119, permits satellite operators to retransmit distant broadcast television signals. Congress has renewed this provision in five-year intervals. In 2004, Congress inserted a "no distant if local" provision, which prohibits satellite operators from importing distant signals into television markets where viewers can receive the signals of broadcast network affiliates over the air.

Under the statutory license, cable, telco, and satellite operators make royalty payments every six months to the U.S. Copyright Office, an agency of the Library of Congress. The head of this office, the Register of Copyrights, places the money in an escrow account and maintains the "Statement of Account" that each operator files. Congress has charged the Copyright Royalty Board (CRB), which is composed of three administrative judges appointed by the Librarian of Congress, with distributing the royalties to copyright claimants. It also has the task of adjusting the rates at five-year intervals, and annually in response to inflation. For additional information about these licenses, see CRS Report R44473, What's on Television? The Intersection of Communications and Copyright Policies , by Dana A. Scherer.

Through a series of laws ( Table 1 ) enacted over the last 30 years, Congress created new sections or modified existing sections of the Copyright Act and the Communications Act to regulate the satellite retransmission of broadcast television and to encourage competition between satellite and cable operators. Congress began the process with the enactment of the Satellite Home Viewer Act of 1988 (SHVA; P.L. 100-667 ), revised it further in several laws leading to the Satellite Television Extension and Localism Act (STELA) of 2010 ( P.L. 111-175 ), and amended the process again with the enactment of the STELA Reauthorization Act of 2014. Most recently, the enactment the Satellite Television Community Protection and Promotion Act of 2019, and the Television Viewer Protection Act of 2019, (Titles XI and X of Division P, respectively, of the Further Consolidated Appropriations Act, 2020, P.L. 116-94 ) permanently extended some legal provisions governing retransmission of distant network broadcast signals, while repealing others.

Certain provisions in the STELA Reauthorization Act were set to expire on December 31, 2019. The copyright provision set to expire was Section 119 of the Copyright Act (17 U.S.C. Â§119). This section enables satellite operators to obtain rights to copyrighted programming carried by distant broadcast network affiliates, superstations, and other independent stations. Under this regime, the satellite operators submit a statement of account and pay a statutorily determined royalty fee to the U.S. Copyright Office on a semiannual basis, avoiding the transactions costs of negotiating with each individual copyright holder.

A satellite operator is allowed to retransmit the signals of up to two distant stations affiliated with a network (ABC, CBS, FOX, NBC, or PBS) to a subset of subscribing households that are deemed "unserved" with respect to that network. The "unserved household" limitation does not apply to the retransmission of superstations (see Table 1 , note a). Pursuant to Section 119, satellite operators may retransmit superstations to commercial establishments as well as households.

Section 119 specified five different categories of unserved households:

1. a household located too far from a broadcast station's transmitter to receive signals using an antenna; [Section 119(d)(10)(A)] 2. a household that received written consent from a local network affiliate to receive a distant signal; [Section 119(d)(10)(B)] 3. a household thatâeven if it could receive a local broadcast signal over the airânevertheless received a satellite retransmission of a distant signal on October 31, 1999, or whose satellite provider terminated the distant signal retransmission after July 11, 1998, and before October 31, 1999, pursuant to court injunction; [Section 119(d)(10)(C)] 4. operators of recreational vehicles and commercial trucks who complied with certain documentation requirements; [Section 119(d)(10)(D)] 5. a household that received delivery of distant network signals via C-band before October 31, 1999. [Section 119(d)(10)(E)]

In 2010, Congress provided an incentive for DISH to offer local-into-local service in all 210 markets with the enactment of STELA.

As Table 2 indicates, between 2014 and 2019 the amount of Section 119 royalties collected by the Copyright Office declined by 89%. According to the Register of Copyrights, the decline is due in part to the drop in the number of distant network stations carried and the conversion of non-network superstations, such as WGN, to cable networks. In addition, as Figure 1 indicates, the total number of households subscribing to satellite television declined from about 34.4 million in 2014 to 27.3 million in 2019.

Expiring Provisions of Communications Act

Several provisions of the Communications Act were also set to expire at the end of 2019. Some of those provisions cross-reference Section 119 of the Copyright Act.

Cross-References to Section 119 of Copyright Act

Section 325(b)(2)(B) and (C) of the Communications Act [47 U.S.C. Â§325(b)(2)(B)-(C)] permit a satellite operator to retransmit distant broadcast signals of stations without first seeking retransmission consent from those stations, if the satellite operator is retransmitting the signals pursuant to Section 119 of the Copyright Act.

Section 338(a)(3) of the Communications Act [47 U.S.C. Â§338(a)(3)] states that a low-power station whose signals are retransmitted by a satellite operator pursuant to Section 119 of the Copyright Act [17 U.S.C. Â§119(a)(14)] is not entitled to must carry rights.

Section 339(a)(1)(A) of the Communications Act (47 U.S.C. Â§339) permits satellite operators to retransmit the signals of a maximum of two affiliates of the same network in single day to households located outside of those stations' DMAs, subject to Section 119 of the Copyright Act. Section 339(a)(1)(B) states that satellite operators may retransmit local broadcast signals under 17 U.S.C. Â§122 in addition to any distant signals they may retransmit under Section 119 of the Copyright Act. Section 339(a)(2)(A) discusses rules for retransmitting broadcast station signals to satellite subscribers meeting the "unserved household" definition under Section 119 of the Copyright Act [17 U.S.C. Â§119(d)(10)(C)]. Section 339(a)(2)(D) and (c)(4)(A), in describing households eligible to receive distant signals, cross-reference the "unserved household" definition under 17 U.S.C. Â§119(d)(10)(A). Section 339(a)(2)(G) states that "this paragraph shall not affect the ability to receive secondary transmissions ... as an unserved household under section 119(a)(12) of title 17, United States Code." Section 339(c)(2) describes the process under which a household may seek a local affiliate's permission to receive a distant signal, and therefore qualify as an "unserved household" under Section 119 of the Copyright Act [17 U.S.C. Â§119(d)(10)(B)].

Section 340(3)(2) of the Communications Act [47 U.S.C. Â§340] states that a satellite operator that retransmits a distant broadcast signal pursuant to 17 U.S.C. Â§119 need not comply with FCC regulations that would otherwise require the satellite operator to black out certain programs of that station.

Section 342 of the Communications Act [47 U.S.C. Â§342] cross-references Section 119 of the Copyright Act [17 U.S.C. Â§119(g)(3)(A)(iii)], and describes the process through which DISH may obtain a certification from that FCC demonstrating that it is providing local-into-local service in all 210 DMAs. Under 17 U.S.C. Â§119(g)(3), upon presenting this certification, among other documents, to the Florida district court that had enjoined DISH from using the Section 119 license, DISH would be eligible to use it. (See " Expiring Provision of Copyright Act .")

Good Faith Requirements for Retransmission Consent Negotiations

Section 325(b)(3)(C) of the Communications Act (47 U.S.C. Â§325(b)(3)(C)) prohibits broadcast stations from engaging in exclusive contracts for carriage. This section also requires both broadcast stations and MVPDs to negotiate retransmission in "good faith," subject to marketplace conditions. Moreover, according to this section, the coordination of negotiations among separately owned television broadcast stations within the same DMA is a per se violation of the good faith standards.

The FCC implements the good faith negotiation statutory provisions through a two-part framework. First, the FCC has a list of nine good faith negotiation standards. The FCC considers a violation of any of these standards to be a per se breach of the good faith negotiation obligation. Second, the FCC may determine that based on the "totality of circumstances," a party has failed to negotiate retransmission consent in good faith. Under this standard, a party may present facts to the FCC that, given the totality of circumstances, reflect an absence of a sincere desire to reach an agreement that is acceptable to both parties and thus constitute a failure to negotiate in good faith.

Complaints Regarding Good Faith Standard Violations

Over the last 13 years, both broadcast television station owners and MVPDs have filed complaints with the FCC that their counterparty has failed to negotiate in good faith. In some instances, the FCC has found that the complaint lacked validity. In 2016, the FCC reached a consent decree with Sinclair Broadcast Group after completing an investigation. In other instances, the FCC has monitored retransmission consent negotiations even when a party has not filed a complaint. In some cases, stations and/or MVPDs withdraw complaints from the FCC after reaching retransmission consent agreements. In November 2019, the FCC found that seven different station group owners had violated the per se good faith negotiation standards with respect to AT&T, and directed the parties to commence good faith negotiation.

Good Faith Provisions and FCC Media Ownership Rules

Section 325(b)(3)(C)(iv) directs the FCC to adopt rules that prohibit the coordination of negotiations among separately owned television broadcast stations within the same DMA. Unlike the good faith provisions of the Communications Act, the prohibition on coordination is permanent. Additionally, the FCC has adopted a rule declaring such behavior a per se violation of its good faith negotiation standards.

In a related matter, the FCC's rules regarding both the number of stations one entity may own within a DMA and the attribution of that ownership have been in flux. The FCC's ownership rules generally prohibit one company from owning two of the top four ranked stations (usually, stations affiliated with the ABC, CBS, FOX, and NBC networks) within the same DMA. In 2016, the FCC adopted rules specifying that if one television station sells more than 15% of the weekly advertising time on a competing local broadcast television station, it would consider the stations to be under common ownership or control, for the purposes of enforcing its local media ownership rule. In 2017, however, the FCC eliminated this rule as part of a reconsideration of its 2016 decision.

In September 2019, the U.S. Court of Appeals for the Third Circuit vacated and remanded the FCC's 2017 reconsideration. On November 29, 2019, the court vacated, as of that date, the rule changes adopted by the FCC in 2017. The FCC issued an order in December 2019 that amended its rules to reflect the court's mandate and clarify which rules remain in effect. The FCC has not publicly stated whether it will seek review of the Third Circuit's decision by the U.S. Supreme Court. Likewise, the FCC has not publicly stated how it will proceed with media ownership rulemaking it initiated in 2018, in light of the court's ruling.

On December 20, 2019, President Donald J. Trump signed the Satellite Television Community Protection and Promotion Act of 2019, and the Television Viewer Protection Act of 2019 (Titles XI and X of Division P, respectively, of the Further Consolidated Appropriations Act, 2020, P.L. 116-94 ). These laws amended both the Copyright and Communications Acts.

Title XI of P.L. 116-94 permanently extends Section 119 of the Copyright Act, but limits the scope of "unserved households" eligible to receive the distant signals to two categories of households. The first category includes operators of recreational vehicles and commercial trucks who have complied with certain documentation requirements. The second category, added by the act, includes households in "short markets" in the definition of "unserved household." The act defines a short market as

a local market in which programming of one or more of the four most widely viewed television networks nationwide is not offered on either the primary stream or multicast stream transmitted by any network station in that market, or is temporarily or permanently unavailable as a result of an act of god or other force majeure event beyond the control of the carrier.

The act also amends the Copyright Act to condition the eligibility of satellite operators to retransmit distant signals via a compulsory copyright license to unserved households on whether or not they retransmit local television signals in all 210 DMAs. After May 31, 2020, satellite subscribers who fall within the two categories of unserved households described above are no longer eligible to receive distant signals pursuant to the compulsory copyright license unless their satellite operator provides local-into-local service.

Likewise, the other four categories of households described in " Expiring Provision of Copyright Act " are no longer able to receive distant signals pursuant to the compulsory license after May 31, 2020, or until their satellite operator provides local service in all 210 markets, whichever is earlier.

The act also specifies that satellite operators will not lose access to the distant compulsory license if their failure to deliver local signals in all 210 markets is due to a retransmission consent impasse. As described in " Must Carry; Carry One, Carry All ," DISH currently does so, but DIRECTV does not.

Title X of the act permanently extends portions of the Communications Act set to expire at the end of 2019, while amending others. The following provisions that had been set to expire at the end of 2019 are now permanent:

A satellite operator may retransmit broadcast station signals outside of the station's local markets without retransmission consent from those stations, if the operator is retransmitting the signals pursuant to Section 119 of the Copyright Act. Broadcast stations may not enter into exclusive contracts with MVPDs. Broadcast stations and MVPDs must negotiate retransmission consent in "good faith." In the event any party accuses another of failing to negotiate in good faith, the accusing party may petition the FCC to mediate. Joint retransmission consent negotiations by separately owned broadcast stations within the same market constitutes failure to negotiate in good faith.

In addition, Title X amended the Communications Act to state that a qualified "MVPD buying group" representing smaller cable, telco, and/or satellite operators may negotiate retransmission consent with large broadcast station group owners without violating the good faith requirement. The buying group may represent only cable, telco, or satellite operators with 500,000 or fewer subscribers nationally. The broadcast station owner with whom the qualified MVPD group negotiates retransmission consent must reach more than 20% of the "national audience." This amendment takes effect no later than March 19, 2020, that is, 90 days after the enactment of P.L. 116-94 .

Relationship to FCC Media Ownership Rules

As described in " Good Faith Provisions and FCC Media Ownership Rules ," on December 20, 2019, the FCC reinstated the media and ownership rules it had adopted in 2016.

Under the reinstated rules, a single company may not own more than one station in a DMA unless eight independently owned stations remain (eight voices test). In addition, stations that jointly sell 15% or more of one another's advertising time count as "owned" for the purposes of the FCC's ownership rules. This means that non-top-four stations may not jointly negotiate with a separately owned top-four affiliate that sells its advertising time, if common ownership would violate the FCC's eight voices test. Likewise, two non-top four stations may not jointly negotiate retransmission consent in the same market if common ownership would violate the FCC's eight voices test.

The FCC, in measuring the national reach of a broadcast station owner, discounts the number of television households reached within a DMA by a station operating in the Ultra High Frequency (UHF) band by half. In some instances, a station group may reach 20% or fewer households nationally with the "UHF discount," but more than 20% of U.S. households absent the discount. According to estimates from the research firm BIA Advisory Services, as of May 2019, the two companies falling in this category were NBC Universal and Gray Television. Thus, a qualified MVPD buying group could not negotiate with NBC Universal or Gray Television unless the FCC repeals the UHF discount.

In some markets, a television company may effectively operate stations under joint sales agreements or shared services agreements without having them count toward the national ownership limit. Thus, depending on how the FCC interprets the good faith provisions, an MVPD with fewer than 500,000 subscribers nationwide might not be able to use a qualified buying group to negotiate for retransmission of stations operated by a company that reaches 20% or more of U.S. households nationwide.

It is far less common for a company to operate third-party stations in a market in which it does not own a station than in a market in which it does own a station. There are 93 DMAs in which a third party operates at least one station and owns at least one station. In contrast, there are five DMAs in which a third party operates at least one station but does not own any stations. Nonetheless, as Congress advises the FCC on the implementation of this good faith provision, the role of third-party owners in retransmission consent negotiations remains an issue that may be considered.


Tax Cuts and Economic Stimulus: How Effective Are the Alternatives?

Summary: The economic effects of the Coronavirus Disease 2019 (COVID-19) pandemic has led Congress to enact general fiscal stimulus in the form of tax cuts and spending increases. Further stimulus may be considered. This report discusses tax cuts enacted during the Great Recession, as well as those recently enacted and those under consideration.

Summary: In response to the Great Recession several types of tax cuts were debated as possible fiscal stimulusâwith fiscal stimulus legislation enacted in February 2008 ( P.L. 110-185 ) and a much larger one in February 2009 ( P.L. 111-5 ). Both bills included individual tax cuts aimed at lower- and middle-income individuals, along with business tax cuts. In December 2010, along with an extension of expiring tax cuts, a temporary payroll tax cut was adopted. Many, but not all, tax cuts that were expiring after 2012 were extended permanently.

Summary: A tax cut for stimulus is more effective the greater the fraction of it that is spent. Empirical evidence suggests individual tax cuts will be more likely to be spent if they go to lower-income individuals, making the tax rebate for lower-income individuals likely more effective than several other tax cuts. There is some weak evidence that tax cuts received in a lump sum will have a smaller stimulative effect than those reflected in paychecks, but this evidence is uncertain. However, studies of the 2001 rebate found that a significant amount of that rebate was spent. While temporary individual tax cuts likely have smaller effects than permanent ones, temporary cuts contingent on spending (such as temporary investment subsidies or a sales tax holiday) are likely more effective than permanent cuts. (Sales tax holidays may, however, be very difficult to implement.) The effect of business tax cuts is uncertain, but likely small for tax cuts whose main effects are through cash flow. Multiplier estimates reflect these considerations.

Summary: Multiplier estimates from fiscal stimulus enacted during the Great Recession suggest that the most effective tax stimulus provisions in the recent legislation addressing the COVID-19 pandemic were likely the individual rebates, with business provisions having smaller effects. The Paycheck Protection Program and spending and transfer programs were also likely to have larger effects, although some of these demand-side stimulus programs that transferred incomes to individuals may be less effective due to the unique nature of the supply constraints in the current environment. Even if they do not stimulate spending, these measures could also be viewed as relief measures that may help individuals and businesses deal with debt and be more able to comply with social distancing measures designed to prevent the spread of the coronavirus.

T he economic effects of the Coronavirus Disease 2019 (COVID-19) pandemic has led Congress to consider general fiscal stimulus in the form of tax cuts. Additional stimulus proposals are under consideration. This report discusses tax cuts proposed or enacted during the Great Recession, current enacted provisions, and potential ones, and their potential effectiveness.

Several tax cuts were discussed during consideration of fiscal stimulus in response to the Great Recession, and the specific proposal (the American Recovery and Reinvestment Act of 2009, P.L. 111-5 ). This stimulus as enacted included individual tax cuts directed at lower- and middle-income individuals and also included business tax cuts.

An earlier fiscal stimulus ( P.L. 110 - 185 ) adopted in February 2008 included rebates and accelerated depreciation (bonus depreciation) for businesses. Some of these types of provisions were included in stimulus tax cut legislation in 2001-2003 and some of the debate centered on the effectiveness of alternatives. Among the tax cuts discussed in 2001 were tax rebates targeted toward lower-income individuals, a speed-up of tax rate reductions for higher-income individuals, a temporary sales tax holiday, a temporary payroll tax holiday, a temporary investment stimulus, corporate tax cuts (primarily repealing the alternative minimum tax), and dividend reductions. The 2001 tax cut included a rebate and the final version of the 2002 tax cut bill included a temporary investment stimulus. President Bush proposed accelerated rate cuts and dividend relief in his stimulus package for 2003. Proposals such as rebates were made by Democratic leaders. Although the economy recovered from the recession, issues of fiscal stimulus arose again in the 109 th Congress in the wake of Hurricane Katrina. The tax stimulus enacted in response included rebates for both low- and middle-income individuals and temporary bonus depreciation for businesses.

In February of 2009, Congress passed a much larger package ( P.L. 111-5 ), which included spending and tax cuts. Among tax cuts the single largest provision was a two-year refundable earnings credit, the making-work-pay credit, with a dollar cap that was provided through a change in withholding rather than a rebate. Other tax components targeted lower-income individuals and businesses. The business provisions included a bonus depreciation extension and a carryback of net operating losses. The legislation also extended the Alternative Minimum Tax, which tends to go to higher-income individuals.

In December of 2010, along with extending expiring tax cuts (which tended to benefit middle- and higher-income individuals) and unemployment benefits, P.L. 111-312 adopted a temporary two-percentage-point reduction in the payroll tax. As with the making-work-pay credit, its benefits were received in paychecks over time. Unlike the rebate or making-work-pay credit, the payroll tax reduction was not targeted to lower- and middle-income families. Many, but not all, tax cuts that were expiring after 2012 were extended permanently. The payroll tax reduction was not extended, and bonus depreciation was extended for a year.

Congress has enacted four measures relating to the coronavirus. The first was an appropriations bill, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 ( P.L. 116-123 ), which provided $8.3 billion in emergency funding for federal agencies to respond to the coronavirus. This measure was followed by two relief measures that contained tax provisions. The Families First Coronavirus Response Act ( P.L. 116-127 ) provided refundable employer tax credits against payroll taxes to compensate for family and medical leave mandated in the bill. The estimated cost is $95 billion in revenue loss along with $10 billion in outlays because the credit is refundable. The bill also had spending provisions that increased the total cost to $191 billion.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136 ) had much larger revenue effects, including a refundable rebate, phased out at high-income levels, of $393 billion ($142 billion in revenue loss and $151 billion in outlays), $229 billion in business tax provisions (primarily increasing the use of net operating losses but including a tax credit for retaining employees costing $55 billion), and a number of minor individual tax provisions costing $11 billion. The bill also provided a delay in the payment of payroll taxes, increasing cash flow by $352 billion in the first two years, which were subsequently offset by later payments.

The CARES Act also included another relief provision, the Paycheck Protection Program (PPP), which was structured as a loan for small business that could be forgiven if the business retained workers. The PPP was estimated to cost $377 billion, and it also contained a provision excluding the forgiven loan from being included in income (which the tax law otherwise would have counted as income). The exclusion may be negated by IRS guidance disallowing the deduction of expenses. Although structured as a loan forgiveness, such a program has a similar effect as the employee retention tax credit. The PPP can also be considered as an alternative to unemployment benefits because loan forgiveness is contingent on retaining and paying employees.

The CARES Act also had direct spending, transfers, and other deferrals or loans that increased its overall cost to $1.7 trillion; the largest of these provisions in dollar terms was an expansion in unemployment benefits that cost $268 billion.

The final bill, The Paycheck Protection Program and Health Care Enhancement Act ( P.L. 116-139 ) did not include tax provisions. It would add $321 billion to the PPP, $62 billion in additional small business loan authority, and $100 billion in health-related spending ($75 billion for health providers and $25 billion for COVID-19 testing).

Additional stimulus legislation may be considered, which might include aid to state and local governments and additional funds for the PPP.

The Effectiveness of Alternative Tax Cuts

Effectiveness of a tax cut for short run stimulus purposes is judged by the extent to which the tax cut increases private demand (either consumption or investment spending). A tax cut that is saved will have no short term stimulative economic effect (or long term one, if the cut is financed by a deficit, since increased private saving would be offset by decreased government saving). Thus, in general, tax cuts received by individuals will not be successful as a short-run stimulus if they lead to additional saving, and tax cuts received by firms will not be successful unless they lead to spending on investment (or lead quickly to spending on consumption by shareholders). Because part of a tax cut is saved, no tax cut will be as stimulative as government spending.

The following four propositions can generally be supported by economic theory and empirical evidence:

(1) Individual income tax cuts directed at lower-income individuals will likely have a larger effect than cuts directed at higher income individuals, other things equal. This distributional effect suggests that the most effective tax cut would be a rebate which is not only a flat amount but specifically directed at lower-income individuals (who did not have tax liability). While payroll and sales taxes are more concentrated among lower-and moderate-income individuals than the normal income tax, they are largely proportional taxes and the bulk of them will still go to middle- and higher-income individuals. Most income tax cuts actually exclude the bottom 44% of the population who do not pay income tax unless they are refundable (as with the February 2008 cut). Similarly, payroll tax cuts exclude 16% of the population who do not pay payroll taxes. Tax reductions enacted in 2001 were concentrated among the upper part of the income distribution as are dividend and capital gains tax reduction. A flat dollar reduction, if refundable, would be more concentrated on lower and middle incomes than tax cuts that reduce rates or allow deductions.

(2) There is weak empirical evidence and even weaker theoretical basis that a lump sum tax cut is less likely to be spent than one received in small increments (e.g. through withholding). This effect could make a rebate less effective than alternative individual tax cuts if it were not for the distributional evidence. However, the distributional effect is more solidly grounded in economic theory, and is based on more concrete and extensive empirical evidence.

(3) Certain types of temporary tax cuts are likely to be more effective than permanent ones while, in other cases, they are less effective. The most important illustration of this effect is a temporary investment subsidy, but it could also apply to a temporary sales tax holiday or any design where spending is required to obtain the subsidy and is for a limited duration. Otherwise, temporary cuts are likely to be less effective than permanent ones.

(4) Corporate tax cuts that do not make new investments more profitable are unlikely to have much effect on investment or consumer spending, especially when the economy is in a recession, and the effect of corporate rate cuts is likely small.

The remainder of this report provides a summary of the evidence and economic reasoning supporting these propositions, followed by a brief discussion of current policies. Before discussing these propositions, however, it is important to note the differences between a model where individuals consume based primarily on current income compared to those where individuals consume primarily out of permanent (lifetime) income, because much of the empirical analysis focuses on this issue. Optimal lifetime consumption models imply that consumption is based on permanent income and suggest very little will be spent out of transitory income (because it has little effect on permanent income). Thus, a temporary tax cut, which is the normal mode of a fiscal stimulus, would be ineffective. Extensive empirical investigation has rejected this permanent income model in its pure form and suggests that consumption responds to permanent and current income.

Proposition 1: A tax cut directed at lower - income individuals should have a larger effect on spending than one directed at higher - income individuals.

Data show that the fraction of income saved rises as income rises. One study found that the savings rate for the top 1% was at least 300 times the average. Arraying families by wealth, another study found that the top 1% saved 37%, the next 9% saved 15%, and the bottom 90% saved 0%.

This pattern is far too pronounced to be accounted for by business cycle reasons and cannot be explained by life-cycle patterns and thus implies a departure from the permanent income model of consumption. A saving rate that rises across incomes could be expected even in a permanent income model if each individual has the same permanent saving rate. At any time, some individuals may be earning lower than average amounts and others higher than average amounts. Thus the transitory income would understate permanent income in some cases and overstate it in others. Since more individuals with unusually low incomes would fall into the lower groups (and more with higher incomes into the high groups), some pattern of rising saving rates is expected. But empirically the effect is far too large to be explained by this phenomenon (which can be examined by looking at variations over time for an individual). A rising saving share with income could also arise from life-cycle reasons. Typically income is low in the early years of life, rises during the working career and falls at retirement. If individuals want consumption to be smoother than income, they will save less when they are young and old and have lower incomes, and save more in the middle when they have higher incomes. However, when examining the data, age does very little to explain saving behavior and the patterns of rising saving rates with income persist within age groups.

Aside from these empirical observations, there are theoretical reasons to expect that lower-income individuals are likely to spend more of an additional dollar of income than do higher-income individuals, especially in the case of a temporary tax cut, which is the kind of cut normally associated with fiscal stimulus. They may have a lower-lifetime saving rate because social welfare programs are likely to have a higher wage replacement rate during instances of bad luck (e.g., disability) or old age and because they are less likely to wish to leave bequests. Indeed, for some means-tested programs, assets can disqualify an individual from coverage. They may have less information with which to optimize over time and, if they save at all, simply have a target amount (at least in the short run), so that additional income is spent (including temporary income increases). Finally, they are more likely to be subject to liquidity constraints; that is, to prefer to spend more than their earnings and not be able to because they cannot borrow and have no assets. Indeed, permanent income theories suggest that temporary tax cuts for non-liquidity constrained individuals may have virtually no effect, while tax cuts for liquidity constrained individuals will be largely spent.

Proposition 2. A tax cut provided through a lump sum payment may be less likely to be spent than one which shows up in withholding, but the evidence is weak.

This differential effect (which would not occur in a permanent income model) was pointed out by the Congressional Budget Office (CBO) in its studies of the effectiveness of alternative tax cuts. CBO referred to a comparison of results from two studies that examined the effect of income tax refunds, and of expected rate cuts from pre-announced tax cuts of the early 1980s. Both studies rejected the permanent income model (suggesting some spending effects from a transitory tax cut), but larger effects were found for the rate reductions.

There are, however, two reservations about comparing these two events to gain insight into the effects of lump-sum tax cuts versus tax cuts reflected in paychecks over time. First, to the extent that individuals use over-withholding as a means of forcing themselves to save, one would not expect spending to rise when the refund is received, even though it might rise when an unplanned rebate is received. Thus, finding a smaller amount of spending out of a refund than out of tax cuts reflected in paychecks may not be very meaningful. Secondly, the model assumes that individuals were certain that the later phases of the Reagan tax cuts would be received. If there was some uncertainty, however, the fact that spending did not increase until the tax cut was actually received may partially reflect not the failure of the permanent income model, but the lack of certainty about receipt of the cut. If a differential does indeed exist, this effect could make the payroll tax cut (and sales tax holidays) more effective than a rebate. However, these "lump sum" effects would have to be offset by the distributional effects discussed in proposition I and supported by considerable empirical evidence. For that reason, it would be difficult to conclude that a payroll tax holiday would be more effective than a rebate directed at low-income individuals. In addition, some evidence on the 2001 and 2008 tax rebates suggested that a large fraction of that rebate was spent. Evidence on the payroll tax cut in 2011 found a smaller share of that tax cut spent than the rebate, but that difference may reflect methodological and distributional differences or differences in economic conditions.

Proposition 3. Certain types of temporary tax cuts may be more effective than permanentÂ ones.

In general, the permanent income modeling of consumption, even when it does not hold in a pure form, suggests that temporary tax cuts will be less effective than permanent ones, presenting something of a dilemma because tax cuts motivated for fiscal policy reasons need to be temporary (if they are not to hamper long-term growth). However, temporary tax cuts that depend on spending (rather than receiving income) are likely to be more effective in the short run than permanent ones. During a period of slack employment, a payroll or individual income tax cut is simply a temporary windfall which can be spent at any time without any further consequence for the size of the tax cut. But if the tax benefit is triggered by spending, a temporary tax cut will be more effective (just as a temporary sale tends to induce a large response). The most common example is the investment tax credit or a similar subsidy, such as temporary partial expensing of investment, but the same would be true of a temporary sales tax holiday. Although expensing of equipment is no longer an option (as 100% is currently allowed following the 2017 tax cut), investment credits would still be a possible investment incentive.

Note that while this feature may make a temporary tax cut more effective than a permanent one, it does not mean that the stimulus is more effective than other alternatives when all factors are considered. Most evidence suggests that investment subsidies have a small effect on investment and that the temporary investment subsidy enacted in 2006 was not very effective. And, it may be particularly difficult to induce investment (even with a temporary subsidy) when excess capacity exists. While firms benefit from the temporary subsidy, they lose the benefit of delaying cash outlays. If investment is insensitive to these cost effects, a subsidy directed at increasing consumption may be more effective even if the latter is not the type where the temporary nature provides a benefit. In the case of the sales tax holiday versus other individual cuts, there may be a substantial implementation lag in arranging the sales tax holiday since sales taxes are imposed by the states, and fiscal stimulus may be applied at the wrong time. Moreover, the anticipation of the holiday should be contractionary. That is, a pre-announced future temporary spending subsidy is initially contractionary.

Proposition 4. Corporate tax cuts that do not make new investments more profitable would not have much effect; corporate rate cuts are less effective than investment subsidies.

One proposal considered in the past was a repeal of the corporate alternative minimum tax with a refund of existing credits. Such a change does not necessarily make new investment more profitable; indeed, it is possible that new investment may be subject to higher tax burdens under the regular rates than under the lower rates in the AMT. The corporate AMT was permanently repealed after the 2017 tax cut, but other measures of a similar nature might be considered. An extension of net operating loss (NOL) carrybacks was proposed in the 2009 stimulus package and would likely not make investments more profitable although a temporary restoration of NOL carrybacks (which were eliminated in the 2017 tax cut), as well as additional measures to allow benefits of losses was included in proposals to aid businesses severely affected by COVID-19.

Economic theory suggests that the investment decision should be driven by its expected profitability. A tax decrease not associated with that profitability should have no effect on investment. Rather, a tax decrease (which increases a firm's cash flow) is more likely to be spent on reducing debt, or paying out dividends. Both choices would not expand aggregate demand. Similarly, a corporate rate reduction, which largely benefits existing capital, would have modest effect compared to a stimulus directed at new investment.

There is a potential constraint, however: if the firm does not have access to outside capital or finds outside capital excessively costly, cash flow might have an effect on investment. This effect would be likely, however, to be focused on small firms. There is some empirical evidence of a positive relationship between firm investment and cash flow. However, interpreting this evidence with respect to the effectiveness of a corporate cash flow as a stimulus to investment spending during an economic contraction is hampered by two important reservations. First, in most cases, cash flow is correlated with the productivity of investment and investment growth, and investment may be responding not to cash flow but to investment outlook. Secondly, even if there is some independent effect of cash flow in normal circumstances, then whether an increase in cash flow would induce a firm to make new investments during periods of excess capacity is doubtful. In any case, a choice that is more focused on investment (such as an investment subsidy) would have a more pronounced effect than one that is not. During the period of tight credit now being experienced a net operating loss carryback may have more effect because distressed firms are finding it more difficult to borrow.

General corporate rate cuts are less likely to be effective than investment subsidies because they have a smaller "bang-for-the-buck" because much of their cost is a windfall that only affects cash flow and not the return to new investment. Since even temporary investment subsidies do not appear to have worked effectively, a corporate rate cut or other provision that primarily affects cash flow would be expected to have a small effect.

Multipliers and the Effectiveness of Stimulus Proposals

This evidence on the effectiveness of alternative stimulus methods is reflected in multipliers. A multiplier indicates how much additional output is produced by a given amount of revenue loss or spending increases. For example, a multiplier of 0.5 estimates that a dollar of revenue loss produces $0.50 of additional output, whereas a multiplier of 1.5 indicates that a dollar of revenue loss will produce $1.50 of additional output. Multipliers differ among policies and also depend on how close the economy is to full employment.

During the Great Recession, multipliers for a refundable rebate (constituting most of the individual tax relief in the CARES Act) were estimated in a range of 0.4 to 1.22 by the Congressional Budget Office (CBO) and at 1.22 by a private forecaster (Moody's). Net operating loss benefits (constituting most of the business provisions in the CARES Act) were estimated at 0 to 0.4 by CBO and 0.25 by Moody's. Non-tax options, such as direct transfers to individuals and aid to state and local governments had multipliers similar to, or larger than, refundable rebates. CBO estimated multipliers of between 0.4 and 2.1 for direct transfers (such as unemployment) whereas Moody's estimated multipliers between 1.55 and 1.71. Aid to state and local governments has multipliers estimated at 0.4 to 1.8 by CBO and 1.34 by Moody's. The larger multipliers for these options reflected the greater share of the benefit spent.

It is possible that standard multipliers do not apply in this recession when consumers face supply constraints that inhibit spending due to the closure of businesses. By contrast, employment has declined very rapidly since March. Some families receiving tax rebates include workers who have lost their jobs or otherwise seen their incomes diminish due to COVID-19. Although only a subset of the population, their rate of spending may be higher than the standard multiplier would suggest. Penn-Wharton Budget Model researchers estimate that the effects of the CARES Act implies a multiplier of 0.4 for the rebates and 0.2 for business provisions. This study assigned similar multipliers of around 0.4 to the PPP and most other provisions but estimated higher multipliers for spending on health and disaster (0.8) and aid to state and local governments (0.7).

Even if the CARES Act and other measures enacted to address the effects of the coronavirus are not very effective as stimulus measures, the measures could also be thought of as relief measures more than stimulus measures. For example, if individuals and businesses use payments to pay debt, these payments do not increase spending, but they may help individuals to avoid credit problems and businesses to survive. They may also make it easier for individual and businesses to comply with social distancing measures to help prevent the spread of the coronavirus.


Economic and Fiscal Conditions in the U.S. Virgin Islands

Summary: Fiscal and economic challenges facing the U.S. Virgin Islands (USVI) government raise several issues for Congress. Congress may choose to maintain oversight of federal policies that could affect the USVI's long-term fiscal stability. Congress also may consider further legislation that would extend or restructure long-range disaster assistance programs to mitigate those challenges and promote greater resiliency of infrastructure and public programs. Federal responses to the USVI's fiscal distress could conceivably affect municipal debt markets more broadly. Greater certainty in federal funding for disaster responses and Medicaid could support the USVI economy.

Summary: The USVI, like many other Caribbean islands acquired by European powers, were used to produce sugar and other tropical agricultural products and to further strategic interests such as shipping and the extension of naval forces. Once the United States acquired the U.S. Virgin Islands shortly before World War I, they effectively ceased to have major strategic importance. Moreover, at that time the Virgin Islands' sugar-based economy had been in decline for decades.

Summary: While efforts of mainland and local policymakers eventually created a robust manufacturing sector after World War II, manufacturing in the Virgin Islands has struggled in the 21 st century. In particular, the 2012 closing of the HOVENSA refinery operated by Hess Oil resulted in the loss of some 2,000 jobs and left the local economy highly dependent on tourism and related services. A renovation of the HOVENSA complex is reportedly in progress.

Summary: The territorial government, facing persistent economic challenges, covered some budget deficits with borrowed funds, which has raised concerns over levels of public debt and unfunded pension liabilities. Local policymakers have proposed tax increases and austerity measures to bolster public finances, which currently operate with restricted liquidity. The Government Accountability Office (GAO) expressed doubts that those fiscal measures would restore access to capital markets or address shortfalls in the funding of public pensions. The previous governor, Kenneth Mapp, set forth measures in his FY2019 budget proposals to delay expected public pension insolvency from 2024 to 2025 and promised to outline other measures that would further delay insolvency until 2028. Governor Albert Bryan Jr. succeeded Mapp in January 2019.

Summary: Damage caused by two powerful hurricanesâIrma and Mariaâthat hit the USVI in September 2017 created additional economic and social challenges. Public revenues, according to estimates based on USVI fiscal data, were halved after the two hurricanes. The USVI economy has relied heavily on tourism and related business activity, which made it more vulnerable to the effects of hurricanes than jurisdictions with more diverse economies. The severity of damage from Irma and Maria, and the subsequent disruption of the USVI tourism industry, suggest that a full economic recovery could take years.

Summary: Federal disaster assistance has included aid to public institutions, such as long-term loans to the USVI government and two hospitals; loans and grants to individuals and small businesses; and direct operations of the Federal Emergency Management Administration (FEMA), the U.S. Army Corps of Engineers, the U.S. Coast Guard, and other federal agencies. Funding for disaster relief has been augmented by supplemental appropriations. The extent of federal disaster assistance received by the USVI will depend, in part, on how funds provided in response to needs resulting from hurricanes and fires in 2017 are allocated among affected areas. The Bipartisan Budget Act of 2018 ( P.L. 115-123 ; Â§20301), enacted on February 9, 2018, included additional Medicaid funding for the USVI and Puerto Rico through September 30, 2019. The U.S. Department of Housing and Urban Development (HUD) allocated $774 million in mitigation funds (CDBG-MIT funds) to the U.S. Virgin Islands and put restrictions on their use.

T his report provides an overview of economic and fiscal conditions in the U.S. Virgin Islands (USVI). The political status of the U.S. Virgin Islands and responses to Hurricanes Irma and Maria are not covered in depth here. Fiscal and economic challenges facing the USVI government raise several issues for Congress. First, Congress may choose to maintain oversight of federal policies that could affect the USVI's long-term fiscal stability. Second, Congress may consider further legislation that would extend or restructure long-range disaster assistance programs to mitigate those challenges and promote greater resiliency of infrastructure and public programs. Federal responses to the USVI's fiscal distress could conceivably affect municipal debt markets more broadly.

The U.S. Virgin Islands are located about 45 miles east of Puerto Rico and about 1,000 miles southeast of Miami, Florida. The three larger islandsâSt. Croix, St. Thomas, and St. Johnâare home to nearly all of the roughly 105,000 people living in the U.S. Virgin Islands. The USVI capital, Charlotte Amalie, is located on St. Thomas, which is the primary center for tourism, government, finance, trade, and commerce. The Virgin Islands National Park covers about two-thirds of the island of St. John, which is located to the east of St. Thomas. St. Croixâsituated approximately 40 miles south of St. Thomas and St. Johnâis the agricultural and manufacturing center of the USVI. The U.S. Virgin Islands also includes a fourth smaller islandâWater Islandâas well as many other smaller islands and cays. The British Virgin Islands (BVI) are, by and large, east and slightly north of the U.S. Virgin Islands. The southern shore of Tortola, the largest island in BVI, is less than two miles north of the northern shore of St. John, USVI.

On his second voyage to the Caribbean in November 1493, Admiral Christopher Columbus and his crew reached the archipelago of the Lesser Antillesâthe string of islands ranging southeast from Puerto Rico. As his ships sailed northwest toward Puerto Rico, they encountered one larger island, which Columbus named Santa Ursula, and saw to the north what they thought were at least 40-odd other islands, which were called "las once mil VÃrgenes." Santa Ursula, now known as St. Croix, was described as "very high ground, most of which was bare, the likes of which no one had seen before or after." Over time those islands became known as the Virgin Islands.

In the decades following Columbus's voyages, the Spanish crown had nearly sole control over all trade and navigation in the Caribbean. By the mid-1500s, merchants and privateers from France, England, and Holland moved into the region to trade with colonists who chafed at the high prices and narrow restrictions of Spanish imperial rules. Spanish galleons returning to Spain with goods and gold provided an additional motivation to privateers and pirates. The Spanish shifted much of their settlements and operations to the South American mainland and to the larger Caribbean islands, where resources were easier to exploit and defenses were easier to mount. The smaller islands to the east in the Lesser Antilles were thus largely left to others. Control of many of those islands, including the Virgin Islands, shifted back and forth among European powers, as peace treaties settled in Europe seldom applied in the New World.

In 1672, the Royal Danish West Indian Company ( Det Kongelige Octroyerede Danske Vestindiske Compagnie ) took control of St. Thomas and set up plantations. The company expanded to St. John (then St. Jan) in 1718 and then purchased St. Croix from France in 1733. Sugar production and export was the primary economic sector during the period of Danish colonial control, although cotton, tobacco, indigo, and other products were also exported. In 1754, the king of Denmark established a free trading policy, which encouraged commercial activity on St. Thomas, sidestepping restrictions imposed by the main European powers of the time. Economic conditions on those islands, however, slowed in the 1830s, and a slave revolt in 1848 led to the abolition of slavery.

After 1848, the Virgin Islands' economy slowed for a combination of reasons. Other Caribbean ports attracted more trade, steam-powered ships traveled more directly between North America and Europe, and the expansion of beet sugar production in Europe, Russia, and North America led to lower prices for the cane sugar industry.

In 1867, Secretary of State William Seward reached an agreement with Denmark to buy the islands. The Senate, however, declined to ratify the treaty. After other unsuccessful attempts in the first decade of the 20 th century, the U.S. government purchased the islands from Denmark in 1917, after a set of negotiations prompted by concerns that Germany might use the islands to attack American shipping. The U.S. government assumed control of the islands on March 31, 1917, just a week before the United States entered World War I. While the United States acquired the islands for strategic reasons, the islands have not generally served a strategic purpose beyond keeping them out of the control of potentially hostile powers.

Naval officers administered the islands after the United States took possession and made important improvements in public health, water supply, education, and social services. Efforts to advance economic development were less successful. In 1931, governance responsibilities were transferred to the U.S. Department of the Interior. In the 1930s, civilian administrators soughtâlargely unsuccessfullyâto revive sugar production and convert failing plantations into smallholder homesteads. The diversion of labor to military projects during World War II led to further declines in agricultural production. After the end of Prohibition in 1933, however, rum distilling became a growing source of manufacturing employment, and taxes on rum have been an important revenue source.

Other types of manufacturing once employed significant numbers, but have declined in recent years. Several watch assembly plants started up in 1959, but the last one closed in 2015. A large bauxite processing plant was built on St. Croix in the early 1960s, but closed in 2000 after several ownership changes. Near that site, Hess Oil partnered with a Venezuelan oil company to build a major oil refinery. That refinery, known as HOVENSA, for a time was one of the largest in the world, but closed in 2012.

Early efforts in the 1950s to promote tourism were another success, especially after the closing of Cuba to American tourism after the 1959 Cuban Revolution. Tourism remains the major employer and economic activity in the U.S. Virgin Islands.

The Revised Organic Act of 1954 (P.L. 83-517) included a provision to rebate, or "cover over," federal excise taxes on goods produced in the Virgin Islands to the island's government. The cover over of federal taxes on rum has been an especially important revenue source.

Typical incomes in the USVI are lower than on the U.S. mainland and poverty rates are higher.

Median household income in the USVI in 2009, according to the U.S. Census Bureau, was $37,254, about 75% of the mainland estimate of $50,221. Demographic and economic data for U.S. territories are typically less extensive and reported less frequently than for states. Table 1 compares the distribution of household incomes in 2009 for the USVI with the U.S. total.

The distribution of household income levels in the USVI is skewed toward lower income brackets compared to U.S. totals. For example, 13.5% of USVI households had incomes below $10,000 in 2009, as compared to 7.8% for the U.S. total.

GDP per Capita and Distortions Due to Tax Avoidance

Gross domestic product (GDP) per capita provides another measure of economy activity. GDP is defined as the value of goods and services produced in a given area during a year. While income produced in an area that is repatriated elsewhere is included in GDP, it is excluded from gross national product (GNP), which reflects incomes of area residents. For areas where flows of repatriated earnings are large, GDP may be a flawed measure of local incomes.

Data on such flows of repatriated earnings, which may result from tax avoidance or minimization strategies, are difficult to obtain. The European Union added the USVI to a list of "non-cooperative tax jurisdictions" in March 2018. The European Council, a body consisting of EU heads of government and senior EU officials, stated that jurisdictions added to the list "failed to make commitments at a high political level in response to all of the EU's concerns." The USVI government called that decision "unjustified." In October 2019, the European Council declined to remove the USVI from the list of noncooperative tax jurisdictions.

With those caveats regarding GDP in mind, Figure 1 presents trends in per capita GDP from 2004 through 2015. Florida and Louisiana, which have both been affected by major hurricanes in that time period, are included for comparison. While USVI per capita GDP did not fall during the 2007-2009 Great Recession, it did drop sharply after the demise of the HOVENSA refinery.

In recent years, tourism and related trade has been the predominant component of the economy of the Virgin Islands. In years before Hurricanes Irma and Maria, about 1.2 million cruise passengers and about 400,000 airplane passengers arrived each year. Virgin Islands tourist destinations compete with many other Caribbean destinations. Much of the growth in Caribbean tourism has taken place in all-inclusive resorts that rely on low-wage labor, such as in the Dominican Republic. Many hotels and resorts were seriously damaged or destroyed in the September 2017 hurricanes. Employment and tourist arrival data, discussed below, suggest the tourism sector has started to rebound, although that process could take years to complete.

Manufacturing, which had played a major role in the Virgin Islands since the 1960s, now plays a minor economic role aside from two rum distilleries, which enjoy extensive public subsidies. Slightly more than 600 people were employed in manufacturing in 2015, mostly in small firms.

The Cruzan distillery, which has a capacity to produce about 9 million proof gallons per year, claims a presence in the Virgin Islands since the mid-18 th century. Cruzan was sold to Fortune Brands in 2008, after several changes in ownership. The Diageo distillery, which can produce some 20 million proof gallons per year, was built as part of a 2008 agreement with the territorial government. Diageo is a British multinational corporation specializing in the marketing of alcoholic beverages, which previously operated a distillery in Puerto Rico. A separate agreement between Cruzan and the USVI government was negotiated in 2009. In 2012, the USVI government agreed to modify the Cruzan agreement to increase subsidies, subject to set sales and marketing expense benchmarks.

The agreements with the Virgin Islands Government and Diageo and Fortune Brands included an estimated $3.7 billion in subsidies and tax exemptions over 30 years, provided through proceeds of bonds that securitized "cover-over" excise taxes on rum sales rebated from the U.S. government and local tax abatements. The agreements also committed the USVI government to provide ongoing production and marketing subsidies paid from cover-over revenues. The agreement bars the USVI government from seeking reductions in rum subsidies. As noted above, federal excise taxes on rum imported into the United States from the USVI and Puerto Rico (PR), or from anywhere else, are "covered over" to the PR and the USVI governments.

The HOVENSA oil refinery, mentioned above, had been one of the USVI's largest employers, with about 1,200 workers and nearly 1,000 contractors. Since 1998, the refinery operated as a joint venture between Hess Oil and PetrÃ³leos de Venezuela, a petroleum company owned by the Venezuelan government. The refinery suddenly shut down in 2012 after running large losses. While mainland refineries had shifted to natural gas as an energy source, the HOVENSA facility relied on relatively expensive fuel oil.

HOVENSA filed for bankruptcy under chapter 11 of the Bankruptcy Code in September 2015. The USVI government received $220 million as part of the agreement to resolve HOVENSA's assets, which was used to cover the government's budget deficit for 2015. Limetree Bay purchased some HOVENSA facilities to build an oil storage facility that initially employed about 80 people and which later expanded to employ about 650 people.

A renovation of the HOVENSA refinery complex was reportedly three-quarters complete in late 2019, potentially allowing fuel deliveries in early 2020.

Over many decades, agriculture's role in the economy has dwindled to a marginal activity. Most of the island's food supply and essentially all of the molassesâa syrup extracted from sugar caneâused to produce rum is imported.

The high cost of electricity in the U.S. Virgin Islands is one factor that hinders economic development. Residential customers pay 40 cents per kilowatt/hour (kWh) or about three times the average cost on the mainland. Commercial electricity rates are approximately $0.47/kWh.

Island power systems do not benefit from gas pipelines or electric grids that extend over large areas, thus face higher costs than mainland systems. U.S. Virgin Islands Water and Power Authority (VIWAPA) supplies electrical power and water. The bulk of power generation is fueled by oil and diesel, although initiatives to enable use of propane and natural gas have been under way. For instance, VIWAPA modified some electric generating units to allow them the option to use natural gas, propane, or fuel oil. Expanding the efficient use of renewable sources of electricity, such as wind and solar, may require upgrades in transmission and generation systems. In 2015, renewable sources made up 8% of VIWAPA's peak demand generating capacity.

Fiscal challenges facing the USVI government have intensified in recent years. Several news reports in 2017 posed pointed questions about the sustainability of the islands' public debts, which total about $2 billion. Those debt levels, on a per capita or on a percentage of GDP basis, are extremely high compared to other subnational governments in the United States. In addition, the most recent actuarial analysis of public pensions found a net pension liability of about $4 billion. In 2017, the Government Accountability Office (GAO) found that "more than a third of USVI's current bonded debt outstanding as of fiscal year 2015 was issued to fund government operating costs." A 2019 GAO report noted that the USVI government had been shut out of capital markets since 2017, which could hobble its ability to roll over maturing debt. The report also summarized concerns with the solvency of the public pension system, growth prospects, effects of 2017 changes in the federal tax law, and the uncertain status of federal Medicaid funding.

Concerns about debt levels had led each of the three major credit ratings agencies to downgrade at least part of the islands' public debts. Others suggested that USVI's public debts would have to be restructured. In August 2017, then-Governor Mapp said that communications with credit ratings agencies had been suspended, which prompted those agencies to drop USVI's credit ratings.

The U.S. Virgin Islands and other U.S. territories are not covered by the provisions of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA; P.L. 114-187 ). Nonetheless, some credit ratings agencies saw enactment of PROMESA as a sign that Congress and the President could enact future legislation to enable debt adjustments in other territories.

Like many state governments, USVI public revenues were severely affected by the 2007-2009 Great Recession. Tourism, the mainstay of the USVI economy, was affected. In turn, government revenues, typically closely tied to economic activity, also fell. In addition, rum subsidy payments doubled from 2006 to 2007 and 2008. As noted above, the closure of the HOVENSA refinery in 2012 resulted in hundreds of lost jobs and a significant contraction of the USVI tax base.

In recent years, the islands' government has run structural deficits and has used bond proceeds to cover shortfalls. Kenneth Mapp, who was inaugurated as governor in January 2015, had proposed various fiscal measures intended to reduce or eliminate those deficits. In August 2016, the islands' government took steps to issue bonds, which were to be used to cover financing shortfalls for its FY2017 budget. That issue was postponed until January 2017 and then cancelled. The loss of access to capital markets at reasonable rates left the islands' government with a narrow set of liquidity resources.

In January 2017, then-Governor Mapp proposed a series of measures intended to strengthen public finances, including certain tax increases, enhanced revenue collection measures, and reductions in public spending. A package of tax measures, including higher taxes on beer, liquor, sodas, and timeshare rentals, which were part of the governor's proposals, was enacted on March 22, 2017. GAO, in an analysis of debts of U.S. territories, expressed doubts that those fiscal measures would restore access to capital markets or address shortfalls in the funding of public pensions and other retirement benefits.

Then-Governor Mapp also had announced that a $40 million revenue anticipation note would soon be issued through Banco Popular, which he contended would provide the USVI government with liquidity through September 2017. It appears that issuance was also suspended. The form of USVI's public debt service, in which many funds are routed through escrow accounts before reaching government coffers, also limits options for USVI policymakers.

Governor Albert Bryan Jr., who succeeded Mapp in January 2019, claimed to have stabilized government operations and finances in his first year in office, including by taking steps to reestablish relations with credit rating agencies and enhance transparency of public finances.

The USVI was hit by two powerful hurricanes in September 2017, which caused extensive damage from which island residents are continuing to recover. Hurricane Irmaâshown in Figure 2 âwas "one of the strongest and costliest hurricanes on record in the Atlantic basin." Irma passed directly over St. Thomas and St. John on September 6, 2017, causing "widespread catastrophic damage."

Two weeks later, on September 20, Hurricane Maria hit St. Croix, before continuing on to devastate Puerto Rico. Figure 3 shows paths and zones of extreme wind speeds for both hurricanes in the vicinity of USVI. In November 2017, the USVI government estimated that uninsured damage from the hurricanes would exceed $7.5 billion.

Disaster declarations following Hurricane Irma and Hurricane Maria enabled the USVI government and its residents to receive federal assistance through various provisions of the Stafford Act ( P.L. 93-288 , as amended). Those declarations authorized the Federal Emergency Management Agency (FEMA) to assist local and territory governments, certain private nonprofit organizations, and individuals through grants, loans, and direct aid. FEMA, the U.S. Corps of Engineers, and the U.S. Coast Guard, among other federal agencies, also directly supported disaster response and recovery efforts.

Other forms of federal disaster assistance have included loans and grants to individuals and small businesses, including through the Small Business Administration disaster loan program. The USVI government and two hospital authorities received Community Disaster Loans (CDLs) on January 3, 2018. The USVI government CDL totaled $10 million with a term of 20 years. CDLs were designed to provide liquidity to local governments that have suffered revenue declines due to disasters. Estimates based on USVI fiscal data suggest that public revenues were halved after the two hurricanes.

Funding for disaster relief has been augmented by several supplemental appropriations. The extent of federal disaster assistance received by the USVI will depend, in part, on how funds provided in response to needs resulting from hurricanes and fires in 2017 are allocated among affected areas.

In the Bipartisan Budget Act of 2018 ( P.L. 115-123 ; Â§20301), enacted on February 9, 2018, Congress provided the USVI and Puerto Rico with additional Medicaid funding for the period January 1, 2018, through September 30, 2019. For the USVI Medicaid program, an additional $107 million was provided. Another $35.6 million would be available to the USVI subject to certain Medicaid program integrity and statistical reporting requirements. The federal medical assistance percentage (FMAP) was also raised from 55% to 100% for both the USVI and Puerto Rico Medicaid programs during that interval.

On February 4, 2020, House Appropriations Chairwoman Nita M. Lowey introduced H.R. 5687 , an emergency supplemental appropriations bill. Title B of the measure includes provisions that would provide additional resources to territories, including the USVI, through support for child tax credits (and certain expansions of eligibility) and other tax credits, as well as a relaxation on limits on rum cover-over revenues directed to Puerto Rico and USVI. The House passed the measure on February 7, 2020, on a 237-161 vote. The Administration warned it would veto the measure.

VIWAPA Financial Woes Hinder Recovery from Hurricane Damage

Hurricanes Irma and Maria damaged an estimated 80% to 90% of VIWAPA's transmission and distribution lines, although power-generating plants were less affected. The U.S. Department of Energy (DOE) estimated that 93% of total USVI customers had their electric power restored by the end of January 2018. According to the U.S. Virgin Islands action plan submitted to and approved by HUD, the energy sector infrastructure needs as a result of the hurricanes totaled nearly $2.3 billion.

The U.S. Department of Housing and Urban Development (HUD) allocated $67.7 million (approximately 3%) to the U.S. Virgin Islands from a $2 billion Community Development Block Grant-Disaster Recovery (CDBG-DR) appropriation included in the Bipartisan Budget Act of 2018 ( P.L. 115-123 ) "to provide enhanced or improved electrical power systems" for Puerto Rico and the USVI. Governor Bryan reportedly asked HUD to "acknowledge that the Virgin Islands needs at least $350 million of these funds to make a meaningful impact in strengthening the grid and lowering the high cost of electricity in the Virgin Islands."

On September 16, 2019, $774 million in mitigation funds (CDBG-MIT funds) were allocated to the U.S. Virgin Islands; however, HUD announced that

[T]he grantee is prohibited from using CDBG-MIT funds for mitigation activities to reduce the risk of disaster related damage to electric power systems until after HUD publishes the Federal Register notice governing the use of the $2 billion for enhanced or improved electrical power systems. This limitation includes a prohibition on the use of CDBG-MIT funds for mitigation activities carried out to meet the matching requirement, share, or contribution for any Federally-funded project that is providing funds for electrical power systems until HUD publishes the Federal Register notice governing the use of CDBG-DR funds to provide enhanced or improved electrical power systems.

The prohibition on the use of CDBG-MIT funds combined with VIWAPA's cash flow challenges limits VIWAPA's ability to improve resiliency. Without sufficient available funds, VIWAPA is unable to meet federal funding matching requirements in order to make use of eligible mitigation funding from FEMA to permanently harden the electrical power systems.

The government of the U.S. Virgin IslandsâVIWAPA's largest customerâhas been slow in providing payment for services. The UVSI legislature, however, moved to appropriate $22.2 million for hospitals to pay outstanding obligations to VIWAPA, among other provisions.

Throughout 2018 and 2019, USVI policymakers expressed concerns over VIWAPA's financial stability. For instance, Delegate Stacey Plaskett called on Governor Bryan and USVI Senate President Francis to declare a state of emergency in response to the territory's "energy crisis."

In his FY2019 budget proposals, Governor Mapp set forth plans to extend the solvency of the USVI public pension systems. According to those proposals, the projected insolvency of those plans would be postponed from 2024 to 2025. Additional measures, to be outlined in the future, were claimed to suffice to postpone insolvency for three additional years. The FY2019 budget proposals also called for a lifting of a hiring freeze. Additional revenues were expected from expanded federal reimbursement for health programs, along with recovery-related investment activity, although decreased tourist traffic is expected to keep accommodation tax and related collections well below prehurricane levels in FY2019.

The USVI economy has relied heavily on tourism and related business activity, which made it more vulnerable to the effects of hurricanes than jurisdictions with more diverse economies.

Figure 4 shows employment trends in the tourism-dependent leisure and hospitality sector, the territorial government, the manufacturing sector, and the construction sector.

Employment in the leisure and hospitality sector shows a steep decline after Hurricane Marilyn in 1995 and after Hurricanes Irma and Maria in September 2017, after which employment in that sector was halved. Leisure and hospitality employment took about six years to recover to pre-Marilyn levels. Increases in the construction sector offset about half of those losses in 1996 and 1997, presumably due to recovery and reconstruction work. As of December 2019, tourism sector employment has recovered somewhat, but remains well below pre-2017 levels.

Construction employment also rose in 2018 and 2019, but that uptick appears much smaller than in the post-Marilyn time period. Moreover, the posthurricane increases in construction-related activity have been small relative to the loss of tourism employment after 2017.

Employment in the USVI territorial government declined over the 2010-2014 period, but has remained relatively stable since then.

The severity of damage from Irma and Maria, and the subsequent disruption of the USVI tourism industry, suggest that a full economic recovery could take years. Many hotels have remained closed since the hurricanes, although some reopened in 2019. Cruise ship passenger arrivals fell from 1.8 million in calendar year (CY) 2016 to 1.3 million in 2017, but have rebounded somewhat. Air passenger arrivals fell from nearly 800,000 in 2016 to less than 500,000 in 2018. Air arrivals for the first three quarters of CY2019 ran 44% ahead of the same period in 2018.

The economic effects of Hurricanes Irma and Maria can also be seen in initial unemployment claims data, shown in Figure 5 . The post-Irma and Maria uptick in late 2017 is more than twice the size of the 2011-2012 upticks near the time of the closure of the HOVENSA refinery.

The New York Federal Reserve Bank compared the economic effects of Hurricanes Irma and Maria on the USVI and Puerto Rico, noting that the estimated percentage job loss following those hurricanes (-7.8%) was far greater than the percentage job losses in New York City (-3.3%) during the Great Recession.

Researchers report that many young professionals and health care workers have left the USVI for positions on the mainland, which may complicate recovery efforts in the health care sector.

Tracking the progress of USVI economic recovery is complicated as many federal statistical programs report fewer data series for U.S. territories than for states. The Virgin Islands Bureau of Economic Research (VIBER), however, reports regularly on economic, tourism, and population trends.

The fiscal and economic challenges facing the USVI government raise several issues for Congress. First, Congress may consider further legislation that would extend or restructure long-range disaster assistance programs to mitigate those challenges and promote greater resiliency of infrastructure and public programs.

Second, if fiscal pressures on the USVI intensify, Congress might consider a framework similar to that established by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA; P.L. 114-187 ). In the past, however, USVI policymakers opposed making PROMESA provisions available to other territories because of concerns about borrowing costs. At present, the USVI lacks access to the federal Bankruptcy Code or other processes for debt restructuring involving judicial processes.

Third, Congress might consider proposals to support initiatives to lower energy costs for the USVI. Mainland electrical power generation, to a large extent, has shifted to using more natural gas as a fuel. Construction of a liquefied natural gas (LNG) import facility and accompanying generation plants could lead to lower energy prices and an enhanced capacity to employ renewable energy sources. Other innovative energy technologies might also be used to that end. While VIWAPA has taken some steps to modernize its generating units, some major investments may be required. For example, construction of a LNG facility and further conversions of generating units could lower electricity rates, but would require financial commitments that would likely challenge the fiscal capacity of the USVI government and VIWAPA. Moreover, LNG supply contracts typically extend over decades due to the scale of required investments, arrangements which could be difficult to negotiate given the USVI's fiscal situation.

Fourth, Congress may expand oversight of federal agencies that administer disaster assistance programs, including FEMA and HUD, to ensure the timely receipt of assistance by grantees. Several Members of Congress have expressed concerns that funds for federal disaster recovery efforts have been unduly delayed. Congress could also examine the interplay among federal agencies, federal rules and regulations that apply to disaster responses operations, and local governments and nonprofits in affected areas.

Fifth, Congress may revisit the structure of the rum cover-over program to assess whether its current structure is appropriately fitted to public purposes. The contractual bar to USVI advocacy of changes in the cover-over program could require Congress to initiate any such alterations.

Sixth, Congress may choose to promote economic and social development through a wide range of tax and social program rules, some of which treat USVI differently than states.