Earlier this week, the House passed an unusual bill that authorizes advance appropriations for Veterans Affairs (VA) funding.  HR 1016 means that Congress will create two budgets this year, one for the current 2010 appropriations cycle, and a future budget for 2011.  Subsequent years will produce budgets that are at least a year ahead.  For the VA department, which has been plagued in recent years by reports of patient neglect and poor management, this will hopefully be the first step towards better service delivery.

Unlike Medicare and Medicaid, VA funding must be appropriated annually and in recent history, Congress rarely delivered a budget on time.  Year after year, a delayed budget adversely affected the program staff’s ability to plan ahead or move forward with capital projects.  Veterans already face a complicated medical system that often exposes the lack of coordination between the military and VA.  This was particularly evident during the Walter Reed scandal and a separate and no less embarrassing loss of private electronic health data in 2006.

The Department of VA will now submit budgets at least a year ahead of time for the following categories: Medical Services, Medical Support and Compliance, Medical Facilities, Information Technology Systems, and Medical and Prosthetic Research.  Similar to multi-year budgets, the ability to submit budgets ahead of time will allow for more strategic planning and program execution.  This should allow the Department to more accurately project costs, assuming there are no major programmatic changes.

This budgeting mechanism differs from a traditional multi-year budget because the Department of VA is not required to forecast tax revenues. As a result, while program managers at VA may propose a spending budget that they feel is adequate for program needs, changing economic conditions might make the figures irrelevant by the time the fiscal year rolls around. A strong monitoring mechanism is necessary to ensure that each budget’s projected costs are appropriate. In this case, the Comptroller General will be responsible for assessing the budget each year. While this isn’t truly a multi-year budget, this is the beginning of a more thoughtful approach to appropriations.

Congressional Quarterly: House Passes Bill For Two-Year Budget Cycle for Some Veterans' Programs

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The military-industrial complex is once again lobbying the Environmental Protection Agency in hopes of staving off regulation of a harmful chemical found in rocket fuel.

On June 5, officials from several defense contractors, as well as government officials from the Pentagon and the Department of Energy, met with EPA to discuss an upcoming public notice discussing the health effects of the chemical perchlorate. The meeting was organized by the White House Office of Information and Regulatory Affairs (OIRA) which is currently reviewing an advanced draft of EPA’s notice.

The defense industry is employing a time-honored industry tradition – questioning scientific conclusions. A document brought to the meeting, unattributed to any specific lobbyist or defense firm, makes a case against regulation. It includes the oft-repeated but usually specious claim that, since a chemical is naturally occurring, it’s safe:

Perchlorate is found naturally throughout the water environment in the 0.5 to 15 ppb range. USGS and other researchers have measured perchlorate in rain, geologic formations, and rivers and aquifers throughout the United States. 

Hey, lead is naturally occurring too. Why don’t we start adding back into gasoline and house paint?

Perchlorate, an ingredient in rocket fuel and some fireworks and fertilizers, has been regularly detected in public drinking water supplies. Exposure to perchlorate has been shown to inhibit thyroid functions, subsequently causing developmental problems.

Thus far, the Obama administration has continued the Bush administration’s kicking-the-can-down-the-road strategy on perchlorate regulation. However, EPA administrator Lisa Jackson has pledged to review the Bush’s administration position, and a new “Perchlorate Regulatory Determination” was sent to OIRA for review in May. EPA’s future plans are unclear.

There are not many transparency requirements imposed on these White House/agency/stakeholder meetings, which OIRA frequently orchestrates to allow regulated businesses, public interest groups, and others to air their views of an upcoming regulatory action. As a result, we do not know what was discussed at the meeting.

But in the past, EPA’s efforts to address perchlorate pollution have been hamstrung by defense contractors and their allies in the Pentagon. In 2005, the Natural Resources Defense Council (NRDC) conducted an investigation that showed DOD, with the support of the White House, pressured the National Academies of Science to downplay the adverse health effects of the chemical perchlorate.

For now, the Pentagon appears to have changed its tune. “Shannon Cunniff, director of chemical and material risk management for DOD, said the Pentagon was asked to attend the meeting, along with other federal agencies, to discuss the issues surrounding perchlorate contamination, and was not lobbying for any particular action from EPA,” according to environmental news service Greenwire. “Furthermore, she added, the Pentagon does not agree that advancing a decision would have an adverse impact.”

That’s good news, because without any intra-governmental pressure, it may be easier for EPA to make the most environmentally protective decisions, and to make that decision quickly. Nonetheless, we’ll continue to keep on eye on this issue.

The Obama Administration continues to look for ways to find tax revenue and as a result, several significant tax breaks for multinational companies may be on the chopping block.  During the Bush and Clinton Administrations, it became easier for controlled foreign corporations (CFCs) to conduct financial transactions between offshore subsidiaries at much-lower effective tax rates (or in some cases, tax-free).  If Obama gets his wish, these tax breaks will not be renewed at the end of 2010 and the Joint Committee on Taxation estimates will result in an increase of $31-86.5 billion in tax revenue from 2011-2019.

The “CFC look-through” rules were originally designed to help multinational corporations simplify or organize their numerous subsidiaries without an extensive tussle with the IRS.  However, Obama is concerned that the policies provide perverse incentives for companies to create off-shore subsidiaries.  A classic example of the (ab)use of this “look-through rule” is when a company moves its profits into tax havens located in countries with low corporate taxation.  The company then borrows money from the tax haven and subsequent interest payments become tax-deductible on the U.S. side and tax-free in the tax haven.  In addition to the tax implications, Obama feels that this policy wrongly rewards companies that move operations (e.g. jobs) out of the United States.

If the tax breaks are not renewed, it would represent the biggest tax increases on American corporations in over two decades.  As public concern over the federal deficit and overall debt management continues to rise, Obama would love to be able to raise some tax revenue and close this loophole as a sign of responsible fiscal management.  Multinationals would need to register their foreign subsidiaries as CFCs and would no longer be able to use the “check-the-box” rules to move the money out of the hands of tax authorities.  In addition to discontinuing the look-through rules, Obama will try to limit companies’ ability to defer taxes on foreign profits ($60.1 billion) and look to eliminate abusive foreign tax credits ($43 billion).

Opponents of the proposed policies argue that without these tax policies, it places the United States at a disadvantage relative to companies that are based in other countries and which may receive more favorable tax treatment for foreign subsidiaries.  These laws currently affect companies in numerous industries, from technology to manufacturing to drug companies.  Multinational corporations have a substantial lobbying presence in Washington and will undoubtedly try to prevent the expiration of the policies.

Bloomgberg: Obama Seeks End of Corporate Tax Break to Raise $190 Billion
Government Accountability Office: Comparison of the Reported Tax Liabilities of Foreign and U.S.-Controlled Corporations, 1998-2005
CongressDaily: Administration Not Expected to Extend a Break Beyond 2010

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The Food and Drug Administration (FDA) is once again chasing after a food safety mystery that is already putting consumers at risk. The agency announced June 19 that E. coli contaminated Nestle cookie dough is tied to a recent rash of illnesses.

FDA is warning consumers to throw away any refrigerated Nestle Toll House cookie dough products. Nestle, working with FDA and retailers, is pulling products from store shelves. The outbreak, which investigators believe began in March, has already sickened at least 65 people in more than two dozen states.

Last summer, the agency spent months trying to figure out the cause of a salmonella outbreak that sickened more than 1,000 people. Initially, FDA focused on tomatoes but later identified Mexican-grown jalapeno peppers as the culprits.

This time, the agency knows the food source, cookie dough, and it knows the contaminant, E. coli 0157. The question is, How did the cookie dough become contaminated with E. coli? Since cookie dough contains egg, and since anyone with working taste buds and a willingness to live dangerously enjoys eating raw cookie dough, salmonella would seem the more logical offender.

The mystery has investigators exploring multiple trails. "Because the appearance of E. coli 0157 in cookie dough is so unusual, investigators are looking at a broad range of possible factors, analyzing the ingredients, the plant's equipment and interior, the health of workers and whether the facility is located near cattle," according to The Washington Post.

In any event, FDA is once again playing catch up. Sarah Klein, an attorney at the Center for Science in the Public Interest, reminds us why pending legislation aimed at bolstering FDA's authority is necessary to prevent similar incidents in the future:

For too long the agency has lacked the authority and the resources it needs to inspect food processing facilities, issue mandatory recalls, and punish violators. Once again the agency is forced to react after illnesses are already occurring, when the focus should be on preventing contamination in the first place. We urge the House to pass the Food Safety Enhancement Act now. 

The bipartisan bill has cleared the House Energy and Commerce Committee and awaits action before the full House. On the Senate side, prospects for a similar bill are less rosy.

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