Fiscal Contingency Preparedness Act (FCPA) Frequently Asked Questions
Amid the growing bipartisan interest in the Fiscal Contingency Preparedness Act (FCPA), below are some frequently asked questions and answers about the bill.
What does the bill do?
The Fiscal Contingency Preparedness Act (FCPA) would implement “fiscal stress tests” through annual assessments of the government's fiscal resilience to potential emergencies such as economic downturns, energy crises, and national security threats. Specifically, the Office of Management and Budget (OMB) and the Treasury Department would conduct these tests, and the Government Accountability Office (GAO) would conduct and publish an independent review.
Who is leading this bill in Congress?
Representatives Ben Cline (R-VA) and Jared Golden (D-ME) are the House leads on H.R. 4642, and Senators Mark Warner (D-VA) and Todd Young (R-IN) are the Senate leads on S. 2492. Former Senators Mitt Romney and Joe Manchin led the bill in the 118th Congress.
Why are fiscal stress tests needed?
Before the Great Recession, the debt-to-GDP ratio was 35%; now it is close to 100%. While some debt growth came from unrelated policy decisions, the Great Recession and COVID-19 added several trillion dollars to the national debt through automatic changes, new legislation, and executive actions. High debt-to-GDP ratios reduce fiscal flexibility, leaving the government with less capacity to respond to future crises that threaten our economic stability and national security. Fiscal stress tests would allow us to better prepare for such emergencies, and hopefully allow us to respond more effectively and at lower cost.
What problem does the bill solve?
There is no system at the federal level to regularly analyze how such shocks would affect our nation’s fiscal health, making it difficult to prepare and understand the potential implications. While it is impossible to prepare for every scenario, stress tests have been successful at the state level and improved risk management practices in the banking sector. The FCPA would apply a similar framework to the federal budget, helping policymakers identify vulnerabilities, manage risk, and improve overall fiscal resiliency.
How does this bill help ordinary Americans?
When the government fails to prepare for a fiscal crisis, the costs can show up in the economy and impact hardworking families. Shocks to the economy can add trillions to the national debt. As debt levels rise, government borrowing costs also increase. Higher government debt not only reduces private investment through higher borrowing costs but also through "crowding out," where the government's borrowing takes priority for dollars over private investment, reducing overall investment in the economy. This slows economic growth, innovation, and wage growth, resulting in slower improvements in quality of life than if debt were stable. Increased transparency about the nation’s fiscal health may also strengthen investor confidence in U.S. debt, which could lower borrowing costs. Fiscal stress tests can help policymakers identify fiscal vulnerabilities and make proactive decisions to address those weaknesses.
Have fiscal stress tests been used elsewhere?
Yes. Since the Global Financial Crisis, the federal government has required large banks to undergo stress tests to assess how well each bank would respond to various hypothetical scenarios, in order to identify vulnerabilities, promote strong risk management, and safeguard the financial system's stability. Gradually, states began adapting the concept of fiscal stress tests to their own budgets.
At least 17 states have conducted a fiscal stress test since 2018. According to the Pew Charitable Trust, these tests “are a proven tool for states to identify how much risk they face from adverse events such as economic downturns.”
Several countries have also conducted fiscal stress tests at the national level through government agencies, while others have done so through research institutions and international organizations such as the International Monetary Fund, Organization for Economic Cooperation and Development, and World Bank.
What if Treasury and OMB misjudge the risks?
After Treasury and OMB release their assessments, GAO would conduct an independent review of the analyses, publish its findings, and share the results with Congress within a year. The GAO report could be used to support Congress and its oversight efforts.
Who supports this proposal?
The following Individuals have expressed support for this proposal:
- Maya MacGuineas, Committee for a Responsible Federal Budget
- Michele Stockwell, Bipartisan Policy Center Action
- Kurt Couchman, Americans for Prosperity
- Demian Brady, National Taxpayers Union Foundation
- William McBride, Tax Foundation
- William Glass, Millennial Debt Foundation
- Dominik Lett, Cato Institute
- Carolyn Bourdeaux, Concord Action
- Nan Swift, R Street Institute
- Brett Loper, Peterson Solutions Fund
- Former United States Senator Joe Manchin
- Former United States Senator Mitt Romney
