Thirteen Years Later, Washington Policy Debates Still Revolve Around 2001 Attacks

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By Jonathan Nicholson

Sept. 10 — As President Barack Obama seeks congressional input for strikes on militant Islamists, the lingering policy impacts of the Sept. 11, 2001, attacks on the U.S. continue to be felt in Washington policy circles, in matters as diverse as insurance, tax policy and military spending.

By the end of 2014, lawmakers must decide whether to extend for a third time a federal backstop to cut losses to insurers from a catastrophic terror attack, a program originally intended to expire in 2005. Similarly, when lawmakers decide which expired or soon-to-expire tax breaks to renew after the midterm elections, one of the candidates will be a tax provision to encourage construction in lower Manhattan.

That such items could still be on official Washington's plate thirteen years after the initial attacks speaks to the severity of the attacks and the ongoing threat posed by militants seeking to bring the conflict to the West, according to some.

“There is still a very significant danger that lurks out there, and ISIL is a perfect example of that,” said Rep. Steny Hoyer (D-Md.), the second-ranking Democrats in the House of Representatives, referring to the Islamic State militant group ravaging Syria and Northern Iraq.

Huge Defense Budgets Persist

According to the Congressional Budget Office, spending on defense went from $306.1 billion in fiscal 2001 to a peak of $699.4 billion in fiscal 2011, as the U.S. went to war in Afghanistan and Iraq. In 2013, even with operations winding down, defense spending was still $624.9 billion, a 104 percent increase from the pre-war figure.

In 2011, caps were put in place for defense and non-defense spending. Those caps have been boosted in each year since, though, as lawmakers balked at their stringency. In 2015, how to again raise the caps will likely be on lawmakers' agendas as the across-the-board cuts needed to enforce them are set to return in the 2016 fiscal year.

“Nine-eleven was a manifestation of a danger in the world that hasn't gone away and which takes different forms now,” said Douglas Holtz-Eakin, president of the conservative American Action Forum, who was with the White House Council of Economic Advisers in 2001 as it drew up the economic response to the attacks.

“It no longer carries the face of Osama Bin Laden. It's now the Islamic State, or ISIL or ISIS. They're different manifestations of this but you have some ongoing policies, whether you think of it as DHS or enhanced security at borders and airports, that probably can't go away because that danger is not gone,” he said.

Liberty Zone

Some policies did lapse. The program to give loan guarantees to U.S. airlines that struggled in the wake of the attacks, the Air Transport Stabilization Board, provided a limited window during which airlines could apply for the guarantees.

But others have not. The Liberty Zone bond program, which was created in March 2002 to promote the construction of commercial and residential property in lower Manhattan through the issuance of tax-exempt bonds, was initially set to only apply to bonds issued by Jan. 1, 2005.

But the program was extended in 2004, 2010 and 2012. And despite the improved outlook for lower Manhattan, at least one New York City-area lawmaker believes it should be extended again.

“There's still a lot to be done to reconstruct lower Manhattan from the attack. Therefore, they should be extended, which is what their purpose was in the first place, to help recovery. The recovery is not complete. We've come a long way, but we've still got a lot to go. So they should be extended until the recovery is complete, which it isn't yet,” said Rep. Jerrold Nadler (D-N.Y.).

Unlike the insurance backstop, which Holtz-Eakin said should be renewed in a different form, he said there is no economic rationale for extending the Liberty Zone bonds.

“I can't even make a reasonable argument for that,” he said. “Post-9/11, the country expressing its commitment to New York City as an ongoing enterprise and helping subsidize the recovery, fine. But it's come and gone.”

Terror Risk

The House and Senate are expected to take up the terror risk insurance backstop sometime in the lame duck legislation session after the midterms. The House Financial Services Committee has approved a bill (H.R. 4871) to extend the backstop for three more years, while the full Senate approved a seven-year extension (S. 2244).

While the program was originally put in place to give insurers time to figure out how to price catastrophic terror insurance accurately, Holtz-Eakin said there are low probability but potentially expensive risks that the insurance market still has trouble pricing. In light of that, he said, some federal backstop is needed.

“In the absence of actual experience, all we have is the assertions by the industry that if this doesn't happen we're never going to build a building again. No one wants that and it's hard to test whether it's true,” he said.

Hoyer also said another extension is needed. “There is still a need to ensure that extraordinary losses are not totally going to be on the insurance companies or they will simply exempt any such losses and lenders will be very reluctant to lend. And that will be bad for the economy and jobs,” he said.

Health Program

Aside from larger issues like insurance and military spending, there are other, lower-profile attack-related issues that will also come up. Nadler said the law that provided health care to first responders and people exposed to the wreckage at Ground Zero in the New York City attack's aftermath will need to be reauthorized by 2016.

“We've got beneficiaries in 341 congressional districts,” Nadler said.

Hoyer, the Democratic whip, said the ongoing programs show the need to stand firm against terrorists. Reminded that Ronald Reagan was said to have joked that nothing is so permanent as a temporary government program, Hoyer said, “And Ronald Reagan also was fully prepared to suggest that we invest in confronting evil when we saw it. We continue to see it.”

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To contact the editor responsible for this story: Heather Rothman at