Addressing the other COVID crisis: Corruption

f t # e
Washington, July 22, 2020 | comments

Addressing the other COVID crisis: Corruption

7/22/2020
Brookings

The need for oversight of Trump administration coronavirus spending has reached an inflection point.[1] Over the past few weeks, there have been reports that 27 clients of Trump-connected lobbyists have received up to $10.5 billion of that spending;[2] that beneficiaries have also included multiple entities linked to the family of Jared Kushner and other Trump associates and political allies;[3] that up to $273 million was awarded to more than 100 companies that are owned or operated by major donors to Trump’s election efforts;[4] that unnecessary blanket ethics waivers have been applied to potential administration conflicts of interest;[5] and that many other transactions meriting further investigation have occurred.[6]

All this comes in a climate of Trump administration hostility to oversight. During negotiations on the CARES Act, the president claimed that he personally would “be the oversight.”[7] He backed up that assertion with a signing statement after passage of the CARES Act stating that he would not treat some of the inspector general reporting requirements as mandatory.[8] The Treasury Department followed his lead by initially refusing to disclose the recipients of Paycheck Protection Program (PPP) funds.[9] They only relented in the face of crushing public and congressional pressure, resulting in a bevy of startling disclosures that call out for oversight.[10]

In this paper, we offer an assessment of how newly established congressional and executive branch COVID-19 oversight authorities should proceed in the face of these developments. In part one, we outline the four principal new oversight structures, assess the largely nascent state of their work, and point to strengths and weaknesses in their overall structure. We note that the two executive branch authorities appear already to have been threatened or adversely affected by President Trump, putting more pressure on the two congressional structures to achieve high functioning.[11]

“The existence of vigorous oversight will ensure that the money disbursed by the CARES Act gets to the people who need and are entitled to those funds.”

In part two of the paper, we outline what these new oversight authorities can—and must—do to meet the urgency of the moment. That includes moving (more) rapidly, coordinating their operations and providing complete data. The existence of vigorous oversight will ensure that the money disbursed by the CARES Act gets to the people who need and are entitled to those funds. Conversely, inadequate oversight will mean favorable treatment for friends of the president and less relief for struggling small business owners and other American firms and individuals. The former is essential and the latter, abhorrent.

PART 1. THE NEW OVERSIGHT MECHANISMS: STRENGTHS AND WEAKNESSES

There are four new oversight bodies concerned with Trump administration coronavirus spending. The CARES Act established three of them that have different ambits and powers to oversee disbursement of the funds and their impact on the economy: The Congressional Oversight Commission (COC),[12] Pandemic Response Accountability Committee (PRAC),[13] and the Special Inspector General for Pandemic Recovery (SIGPR).[14] Additionally, the U.S. House of Representatives established a Select Subcommittee on the Coronavirus Crisis, meant to provide its own oversight of spending and other matters.[15]

A. The Congressional Oversight Commission (COC)

The COC is composed of five members, including one chair, each selected by a Congressional leader.[16] The four current members are Pat Toomey (R-Pa.), Bharat Ramamurti, Donna Shalala (D-Fla.), and French Hill (R-Ark.).[17] The chair is meant to be selected jointly by House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.); the position is still vacant even though the other members had all been named by April 17.[18] Press reports had indicated that Gen. (ret.) Joseph Dunford, was being vetted for the role of chair, but he has recently withdrawn from consideration, seemingly putting the search back to square one.[19]

The COC’s purpose is to submit monthly reports that assess the impacts of the CARES Act funds on the economy as a whole.[20] To do this, they can hire staff, hold hearings, and obtain official federal government data, but do not have subpoena power.[21] Of the trillions of dollars appropriated to deal with the crisis, the COC is meant to assess a $500 billion slice allocated to Treasury to lend to businesses and state and local governments to support and stabilize the economy.[22]

Without a chair, the COC has had a slow start. It has published three reports as of this writing.[23] The first, on May 18, was mostly comprised of background information on the coronavirus crisis and the ensuing legislation, as well as questions that the commission would seek to answer in its later work.[24] The second report, published on June 18, found that while the Federal Reserve had established five lending facilities in which Treasury could disburse the money, less than $100 billion of that $500 billion had actually been disbursed thus far, and only two of the five facilities had made any loans.[25] The $500 billion invested in the facilities is ultimately intended to support nearly $2 trillion in lending, but as of the report date, the facilities had lent just $6.7 billion.[26] The majority of that money—$5.5 billion—was spent by the Secondary Market Corporate Credit Facility, meant to support businesses by purchasing corporate debt and ETFs to instill liquidity in the credit market.[27] On June 2, the Fed made its first loan through the Municipal Liquidity Facility, a $1.2 billion disbursement to Illinois.[28] The other facilities, meant to support businesses by purchasing majority stakes in their loans, have not yet made any loans.[29] The Main Street Lending Facility has begun accepting registrants but has not yet announced any disbursements, and the Primary Market Corporate Credit Facility and Term Auction Loan Facility are not operating at all.[30]

 “[B]ecause of possible gaps in other oversight, a high-functioning Congressional Oversight Commission is critical to the overall oversight structure.”

While COC awaits full functionality, journalists have attempted to fill some of the void, and their work only highlights the urgency of getting the COC up and running. A recent investigative report found that the Treasury official running the coronavirus bailout maintains financial ties to a firm—founded by his father—that primarily trades in corporate debt, including junk bonds.[31] This conflict of interest is made more concerning by the facts that the Fed has never before bought corporate debt, and that the facility buying corporate debt was the first Fed facility to be capitalized.[32] COC member Bharat Ramamurti addressed the story on his personal Twitter account: “In the nine weeks since Congress gave the Treasury and the Fed $500 billion for economic ‘stabilization,’ they’ve used less than 10% of the money to create a single program that has serious conflicts of interest and, at best, a weak connection to stopping ongoing job losses.”[33] This comment is important, but means less coming from a single member of the Commission on his Twitter account than it would from a full Commission, with adequate staffing, publishing regular reports, and holding regular public hearings. Indeed, upon publication of the COC’s second report, Ramamurti opined that the lack of an appointed Chair and staff posed “serious obstacles to performing robust oversight.”[34]

It is urgent that the COC gets a chair and a full staff so it will be able to fully undertake its work on the impact of the CARES Act on the economy. Until that happens, we cannot judge its effectiveness. As we shall see, because of possible gaps in other oversight, a high-functioning COC is critical to the overall oversight structure.

B. The Pandemic Response Accountability Committee (PRAC)

The PRAC is currently made up of 20 inspectors general from across the federal government (and will expand to 21 when the Special Inspector General for Pandemic Recovery eventually joins). Nine members were specified by the CARES Act, and 11 others have come from various agencies.[35] The PRAC chair—appointed by the Chairperson for the Council of the Inspectors General on Integrity and Efficiency (CIGIE)—is currently Michael Horowitz, who is also the inspector general (IG) for the DOJ.[36] Horowitz, who is also the chair of CIGIE, had appointed Glenn Fine to be chair of PRAC on March 30. However, President Trump replaced Fine as acting IG of the Department of Defense, making him ineligible to serve as PRAC chair.[37] Horowitz appointed Robert Westbrooks to the position of Executive Director on April 27, and personally stepped in to serve as Acting Chair of the PRAC.[38]

Unlike the COC, the PRAC is designed to prevent and detect fraud, waste, and abuse in disbursement of CARES Act funds by auditing and reviewing those funds and contracts made under them.[39] The PRAC also has a public-facing role, as the legislation requires it to set up a public website to promote transparency in CARES Act funding, providing detailed information on any disbursement over $150,000.[40]

The PRAC has a wider array of powers than the COC. In addition to the ability to commission audits, studies, and analyses, the PRAC has several ways of gathering information.[41] The CARES Act provides a muscular subpoena power.[42] The PRAC’s subpoena power allows it to compel both documents and testimony from non-federal employees, unlike the standard IG power that only allows for documents.[43] From federal sources, the statute allows the PRAC to request and obtain information directly from the federal government, and “immediately” report the circumstances to Congress if the information is not provided.[44] The PRAC also shall report to the Attorney General if it has any reasonable concern that federal criminal law has been violated.[45]

Other agencies are also required to report monthly to the PRAC on disbursements over $150,000. Each recipient of funds over $150,000 from any agency is required to provide quarterly reports to the disbursing agency and the PRAC on the total amount of funds received, and detail how disbursements over $150,000 were used, including the name and description of project, and the estimated number of jobs created or retained by the project.[46]

f t # e

Keep In Touch

Please sign up below to receive my weekly newsletter and get the latest news and updates directly to your inbox.