prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: The Federal Reserve's (the Fed's) responsibilities as the nation's central bank fall into four main categories: monetary policy, provision of emergency liquidity through the lender of last resort function, supervision of certain types of banks and other financial firms for safety and soundness, and provision of payment system services to financial firms and the government  Congress has delegated responsibility for monetary policy to the Fed, but retains oversight responsibilities to ensure that the Fed is adhering to its statutory mandate of "maximum employment, stable prices, and moderate long-term interest rates " The Fed has defined stable prices as a longer-run goal of 2% inflation—the change in overall prices, as measured by the Personal Consumption Expenditures (PCE) price index  By contrast, the Fed states that "it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision " Monetary policy can be used to stabilize business cycle fluctuations (alternating periods of economic expansions and recessions) in the short run, while it mainly affects inflation in the long run  The Fed's conventional tool for monetary policy is to target the federal funds rate —the overnight, interbank lending rate  This report provides an overview of how monetary policy works and recent developments, a summary of the Fed's actions following the financial crisis, and ends with a brief overview of the Fed's regulatory responsibilities  In December 2008, in the midst of the financial crisis and the "Great Recession," the Fed lowered the federal funds rate to a range of 0% to 0 25%  This was the first time rates were ever lowered to what is referred to as the zero lower bound   The recession ended in 2009, but as the economic recovery consistently proved weaker than expected in the years that followed, the Fed repeatedly pushed back its time frame for raising interest rates  As a result, the economic expansion was in its seventh year and the unemployment rate was already near the Fed's estimate of full employment when it began raising rates on December 16, 2015  This was a departure from past practice—in the previous two economic expansions, the Fed began raising rates within three years of the preceding recession ending  Since then, the Fed has continued to raise rates in a series of steps to incrementally tighten monetary policy  The Fed raised rates once in 2016, three times in 2017, and four times in 2018, by 0 25 percentage points each time  The Fed has stated that "some further gradual increases in     the federal funds rate" are necessary to fulfill its mandate  The Fed describes its plans as "data dependent," meaning they would be altered if actual employment or inflation deviate from its forecast  Although monetary policy is now less stimulative than it had been at the zero lower bound, the Fed is still adding stimulus to the economy as long as the federal funds rate is below what economists call the "neutral rate" (or the long-run equilibrium rate)  To illustrate, the federal funds rate is currently similar to the inflation rate, meaning that the real (i e , inflation-adjusted) federal funds rate is around zero  However, there is uncertainty as to what constitutes a neutral rate today  By historical standards, a zero real interest rate would be well below the neutral rate, but the neutral rate appears to have fallen following the financial crisis, so that current rates may be close to the neutral rate today  Typically, the Fed keeps interest rates below the neutral rate when the economy is operating below full employment, at neutral levels when the economy is near full employment, and above the neutral rate when the economy is at risk of overheating  Indeed, the Fed identifies this as one of its "three key principles of good monetary policy " Because of lags between changes in interest rates and their economic effects, in the past, the Fed has often preemptively changed its monetary policy stance before the economy reaches the state that the Fed is anticipating  In this business cycle, the Fed has maintained a (progressively less) stimulative monetary policy throughout the expansion, boosting economic activity  In one sense, this policy could be viewed as having successfully delivered on the Fed's mandated goals of full employment and stable prices  The unemployment rate has been below 5% since 2015 and is now lower than the rate believed to be consistent with full employment  Other labor market measures are also consistent with full employment, with the possible exception of the still-low labor force participation rate  Economic theory posits that lower unemployment will lead to higher inflation in the short run, but inflation has not proven responsive to lower unemployment in recent years  After remaining persistently below the Fed's 2% target from mid-2012 to early 2018 as measured by core PCE, inflation has remained around 2% in 2018 as measured by headline or core PCE  Economic growth has also picked up beginning in the second quarter of 2017, after being persistently low by historical standards throughout the expansion  Contributing to the 2018 growth acceleration, a more expansionary fiscal policy (larger structural budget deficit) added more stimulus to the economy in the short run  Two notable policy changes contributing to fiscal stimulus in 2018 were the 2017 tax cuts ( P L  115-97 ) and the boost to discretionary spending in FY2018 and FY2019 agreed to in P L  115-123   The Fed did little to offset this fiscal stimulus, as the pace of monetary tightening in 2018 was only slightly faster than in 2017  Despite strong economic data (which is only available with a lag), the Fed announced in January 2019 that it would be "patient" before raising rates again in light of increased economic uncertainty and financial volatility  The Fed's intended policy path poses risks  If the Fed waits too long to raise rates again, the economy could overheat, resulting in high inflation and posing risk to financial stability  As an example of how overly stimulative monetary policy can lead to the latter, critics contend that the Fed contributed to the precrisis housing bubble by keeping interest rates too low for too long during the economic recovery starting in 2001  Critics see these risks as outweighing any marginal benefit associated with monetary stimulus when the economy is already so close to full employment  Raising rates more quickly would also provide more "headroom" for the Fed to lower rates more aggressively during the next economic downturn  The potential percentage point reduction in rates before hitting the zero bound is currently smaller than the rate cuts that the Fed has undertaken in past recessions  Alternatively, there is uncertainty about whether strong growth, low unemployment, inflation around 2%, and the generally benign economic environment will continue  Economic expansions do not "die of old age"; nevertheless, the current expansion is already the second longest on record and cannot last forever  The flattening of the yield curve (i e , long-term Treasury yields are similar to short-term Treasury yields) is seen by some as a warning signal that rates are too high  Although there is a risk of stimulative monetary policy causing the economy to overheat, there is also a risk that tightening too quickly could be harmful if the economy slows  Some critics would prefer clear evidence that inflation is above the Fed's target or financial conditions are unstable before the Fed raises rates again  Monetary policy refers to the actions the Fed undertakes to influence the availability and cost of money and credit to promote the goals mandated by Congress, a stable price level and maximum sustainable employment  Because the expectations of households as consumers and businesses as purchasers of capital goods exert an important influence on the major portion of spending in the United States, and because these expectations are influenced in important ways by the Fed's actions, a broader definition of monetary policy would include the directives, policies, statements, economic forecasts, and other Fed actions, especially those made by or associated with the chairman of its Board of Governors, who is the nation's central banker  The Fed's Federal Open Market Committee (FOMC) meets every six weeks to choose a federal funds target and sometimes meets on an ad hoc basis if it wants to change the target between regularly scheduled meetings  The FOMC is composed of the 7 Fed governors, the President of the Federal Reserve Bank of New York, and 4 of the other 11 regional Federal Reserve Bank presidents serving on a rotating basis  The Fed targets the federal funds rate to carry out monetary policy  The federal funds rate is determined in the private market for overnight reserves of depository institutions (called the federal funds market)  At the end of a given period, usually a day, depository institutions must calculate how many dollars of reserves they want or need to hold against their reservable liabilities (deposits)  Some institutions may discover a reserve shortage (too few reservable assets relative to those they want to hold), whereas others may have reservable assets in excess of their wants  These reserves can be borrowed and lent on an overnight basis in a private market called the federal funds market  The interest rate in this market is called the federal funds rate  If it wishes to expand money and credit, the Fed will lower the target, which encourages more lending activity and, thus, greater demand in the economy  Conversely, if it wishes to tighten money and credit, the Fed will raise the target  The federal funds rate is linked to the interest rates that banks and other financial institutions charge for loans  Thus, whereas the Fed may directly influence only a very short-term interest rate, this rate influences other longer-term rates  However, this relationship is far from being on a one-to-one basis because longer-term market rates are influenced not only by what the Fed is doing today, but also by what it is expected to do in the future and by what inflation is expected to be in the future  This fact highlights the importance of expectations in explaining market interest rates  For that reason, a growing body of literature urges the Fed to be very transparent in explaining what its policy is, will be, and in making a commitment to adhere to that policy  The Fed has responded to this literature and is increasingly transparent in explaining its policy measures and what these measures are expected to accomplish  The Federal Reserve uses two methods to maintain its target for the federal funds rate: The Fed can also change the federal funds rate by changing reserve requirements, which specify what portion of customer deposits (primarily checking accounts) banks must hold as vault cash or on deposit at the Fed  Thus, reserve requirements affect the liquidity available within the federal funds market  Statute sets the numerical levels of reserve requirements, although the Fed has some discretion to adjust them  Currently, banks are required to hold 0% to 10% of customer deposits that qualify as net transaction accounts in reserves, depending on the size of the bank's deposits  This tool is used rarely—the percentage was last changed in 1992  Each of these tools works by altering the overall liquidity available for use by the banking system, which influences the amount of assets these institutions can acquire  These assets are often called credit because they represent loans the institutions have made to businesses and households, among others  The Fed's control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly  The Fed directly controls the monetary base , which is made up of currency (Federal Reserve notes) and bank reserves  The size of the monetary base, in turn, influences broader measures of the money supply, which include close substitutes to currency, such as demand deposits (e g , checking accounts) held at banks  The Fed's definition of monetary policy as the actions it undertakes to influence the availability and cost of money and credit suggests two ways to measure the stance of monetary policy  One is to look at the cost of money and credit as measured by the rate of interest relative to inflation (or inflation projections), and the other is to look at the growth of money and credit itself  Thus, it is possible to look at either interest rates or the growth in the supply of money and credit in coming to a conclusion about the current stance of monetary policy—that is, whether it is expansionary (adding stimulus to the economy), contractionary (slowing economic activity), or neutral  During the high inflation experience of the 1970s the Fed placed greater emphasis on money supply growth, but since then, most central banks including the Fed have preferred to formulate monetary policy in terms of the cost of money and credit rather than in terms of their supply  The Fed conducts monetary policy by focusing on the cost of money and credit as proxied by the federal funds rate  A simple comparison of market interest rates over time as an indicator of changes in the stance of monetary policy is potentially misleading, however  Economists call the interest rate that is essential to decisions made by households and businesses to buy capital goods the real interest rate  It is often proxied by subtracting from the market interest rate the actual or expected rate of inflation  If inflation rises and market interest rates remain the same, then real interest rates have fallen, with a similar economic effect as if market rates (called nominal rates) had fallen by the same amount with a constant inflation rate  The federal funds rate is only one of the many interest rates in the financial system that determines economic activity  For these other rates, the real rate is largely independent of the amount of money and credit over the longer run because it is determined by the interaction of saving and investment (or the demand for capital goods)  The internationalization of capital markets means that for most developed countries the relevant interaction between saving and investment that determines the real interest rate is on a global basis  Thus, real rates in the United States depend not only on U S  national saving and investment but also on the saving and investment of other countries  For that reason, national interest rates are influenced by international credit conditions and business cycles  How do changes in short-term interest rates affect the overall economy? In the short run, an expansionary monetary policy that reduces interest rates increases interest-sensitive spending, all else equal  Interest-sensitive spending includes physical investment (i e , plant and equipment) by firms, residential investment (housing construction), and consumer-durable spending (e g , automobiles and appliances) by households  As discussed in the next section, it also encourages exchange rate depreciation that causes exports to rise and imports to fall, all else equal  To reduce spending in the economy, the Fed raises interest rates and the process works in reverse  An examination of U S  economic history will show that money- and credit-induced demand expansions can have a positive effect on U S  GDP growth and total employment  The extent to which greater interest-sensitive spending results in an increase in overall spending in the economy in the short run will depend in part on how close the economy is to full employment  When the economy is near full employment, the increase in spending is likely to be dissipated through higher inflation more quickly  When the economy is far below full employment, inflationary pressures are more likely to be muted  This same history, however, also suggests that over the longer run, a more rapid rate of growth of money and credit is largely dissipated in a more rapid rate of inflation with little, if any, lasting effect on real GDP and employment  Economists have two explanations for this paradoxical behavior  First, they note that, in the short run, many economies have an elaborate system of contracts (both implicit and explicit) that makes it difficult in a short period for significant adjustments to take place in wages and prices in response to a more rapid growth of money and credit  Second, they note that expectations for one reason or another are slow to adjust to the longer-run consequences of major changes in monetary policy  This slow adjustment also adds rigidities to wages and prices  Because of these rigidities, changes in the growth of money and credit that change aggregate demand can have a large initial effect on output and employment, albeit with a policy lag of six to eight quarters before the broader economy fully responds to monetary policy measures  Over the longer run, as contracts are renegotiated and expectations adjust, wages and prices rise in response to the change in demand and much of the change in output and employment is undone  Thus, monetary policy can matter in the short run but be fairly neutral for GDP growth and employment in the longer run  In societies in which high rates of inflation are endemic, price adjustments are very rapid  During the final stages of very rapid inflations, called hyperinflation, the ability of more rapid rates of growth of money and credit to alter GDP growth and employment is virtually nonexistent, if not negative  Either fiscal policy (defined here as changes in the structural budget deficit, caused by policy changes to government spending or taxes) or monetary policy can be used to alter overall spending in the economy  However, there are several important differences to consider between the two  First, economic conditions change rapidly, and in practice monetary policy can be more nimble than fiscal policy  The Fed meets every six weeks to consider changes in interest rates and can call an unscheduled meeting any time  Large changes to fiscal policy typically occur once a year at most  Once a decision to alter fiscal policy has been made, the proposal must travel through a long and arduous legislative process that can last months before it can become law, whereas monetary policy changes are made instantly  Both monetary and fiscal policy measures are thought to take more than a year to achieve their full impact on the economy due to pipeline effects  In the case of monetary policy, interest rates throughout the economy may change rapidly, but it takes longer for economic actors to change their spending patterns in response  For example, in response to a lower interest rate, a business must put together a loan proposal, apply for a loan, receive approval for the loan, and then put the funds to use  In the case of fiscal policy, once legislation has been enacted, it may take some time for authorized spending to be outlayed  An agency must approve projects and select and negotiate with contractors before funds can be released  In the case of transfers or tax cuts, recipients must receive the funds and then alter their private spending patterns before the economy-wide effects are felt  For both monetary and fiscal policy, further rounds of private and public decisionmaking must occur before multiplier or ripple effects are fully felt  Second, monetary policy is determined based only on the Fed's mandate, whereas fiscal policy is determined based on competing political goals  Fiscal policy changes have macroeconomic implications regardless of whether that was policymakers' primary intent  Political constraints have prevented increases in budget deficits from being fully reversed during expansions  Over the course of the business cycle, aggregate spending in the economy can be expected to be too high as often as it is too low  This means that stabilization policy should be tightened as often as it is loosened, yet increasing the budget deficit has proven to be much more popular than implementing the spending cuts or tax increases necessary to reduce it  As a result, the budget has been in deficit in all but five years since 1961, which has led to an accumulation of federal debt that gives policymakers less leeway to potentially undertake a robust expansionary fiscal policy, if needed, in the future  By contrast, the Fed is more insulated from political pressures, as discussed in the previous section, and experience shows that it is willing to raise or lower interest rates  Third, the long-run consequences of fiscal and monetary policy differ  Expansionary fiscal policy creates federal debt that must be serviced by future generations  Some of this debt will be "owed to ourselves," but some (presently, about half) will be owed to foreigners  To the extent that expansionary fiscal policy crowds out private investment, it leaves future national income lower than it otherwise would have been  Monetary policy does not have this effect on generational equity, although different levels of interest rates will affect borrowers and lenders differently  Furthermore, the government faces a budget constraint that limits the scope of expansionary fiscal policy—it can only issue debt as long as investors believe the debt will be honored, even if economic conditions require larger deficits to restore equilibrium  Fourth, openness of an economy to highly mobile capital flows changes the relative effectiveness of fiscal and monetary policy  Expansionary fiscal policy would be expected to lead to higher interest rates, all else equal, which would attract foreign capital looking for a higher rate of return, causing the value of the dollar to rise  Foreign capital can only enter the United States on net through a trade deficit  Thus, higher foreign capital inflows lead to higher imports, which reduce spending on domestically produced substitutes and lower spending on exports  The increase in the trade deficit would cancel out the expansionary effects of the increase in the budget deficit to some extent (in theory, entirely if capital is perfectly mobile)  Expansionary monetary policy would have the opposite effect—lower interest rates would cause capital to flow abroad in search of higher rates of return elsewhere, causing the value of the dollar to fall  Foreign capital outflows would reduce the trade deficit through an increase in spending on exports and domestically produced import substitutes  Thus, foreign capital flows would (tend to) magnify the expansionary effects of monetary policy  Fifth, fiscal policy can be targeted to specific recipients  In the case of normal open market operations, monetary policy cannot  This difference could be considered an advantage or a disadvantage  On the one hand, policymakers could target stimulus to aid the sectors of the economy most in need or most likely to respond positively to stimulus  On the other hand, stimulus could be allocated on the basis of political or other noneconomic factors that reduce the macroeconomic effectiveness of the stimulus  As a result, both fiscal and monetary policy have distributional implications, but the latter's are largely incidental whereas the former's can be explicitly chosen  In cases in which economic activity is extremely depressed, monetary policy may lose some of its effectiveness  When interest rates become extremely low, interest-sensitive spending may no longer be very responsive to further rate cuts  Furthermore, interest rates cannot be lowered below zero so traditional monetary policy is limited by this "zero lower bound " In this scenario, fiscal policy may be more effective  As is discussed in the next section, some argue that the U S  economy experienced this scenario following the recent financial crisis  Of course, using monetary and fiscal policy to stabilize the economy are not mutually exclusive policy options  But because of the Fed's independence from Congress and the Administration, the two policy options are not always coordinated  If Congress and the Fed were to choose compatible fiscal and monetary policies, respectively, then the economic effects would be more powerful than if either policy were implemented in isolation  For example, if stimulative monetary and fiscal policies were implemented, the resulting economic stimulus would be larger than if one policy were stimulative and the other were neutral  Alternatively, if Congress and the Fed were to select incompatible policies, these policies could partially negate each other  For example, a stimulative fiscal policy and contractionary monetary policy may end up having little net effect on aggregate demand (although there may be considerable distributional effects)  Thus, when fiscal and monetary policymakers disagree in the current system, they can potentially choose policies with the intent of offsetting each other's actions  Whether this arrangement is better or worse for the economy depends on what policies are chosen  If one actor chooses inappropriate policies, then the lack of coordination allows the other actor to try to negate its effects  When the United States experienced the worst financial crisis since the Great Depression, the Fed undertook increasingly unprecedented steps in an attempt to restore financial stability  These steps included reducing the federal funds rate to the zero lower bound, providing direct financial assistance to financial firms, and "quantitative easing " These unconventional policy decisions continue to have consequences for monetary policy today, as the Fed embarks on monetary policy "normalization " The bursting of the housing bubble led to the onset of a financial crisis that affected both depository institutions and other segments of the financial sector involved with housing finance  As the delinquency rates on home mortgages rose to record numbers, financial firms exposed to the mortgage market suffered capital losses and lost access to liquidity  The contagious nature of this development was soon obvious as other types of loans and credit became adversely affected  This, in turn, spilled over into the broader economy, as the lack of credit soon had a negative effect on both production and aggregate demand  In December 2007, the economy entered a recession  As the housing slump's spillover effects to the financial system, as well as its international scope, became apparent, the Fed responded by reducing the federal funds target and the discount rate  Beginning on September 18, 2007, and ending on December 16, 2008, the federal funds target was reduced from 5 25% to a range between 0% and 0 25%, where it remained until December 2015  Economists call this the zero lower bound to signify that once the federal funds rate is lowered to zero, conventional open market operations cannot be used to provide further stimulus  The Fed attempted to achieve additional monetary stimulus at the zero bound through a pledge to keep the federal funds rate low for an extended period of time, which has been called forward guidance or forward commitment   The decision to maintain a target interest rate near zero was unprecedented  First, short-term interest rates have never before been reduced to zero in the history of the Federal Reserve  Second, the Fed waited much longer than usual to begin tightening monetary policy in the current recovery  For example, in the previous two expansions, the Fed began raising rates less than three years after the preceding recession ended  With liquidity problems persisting as the federal funds rate was reduced, it appeared that the traditional transmission mechanism linking monetary policy to activity in the broader economy was not working  Monetary authorities became concerned that the liquidity provided to the banking system was not reaching other parts of the financial system  As noted above, using only traditional monetary policy tools, additional monetary stimulus cannot be provided once the federal funds rate has reached its zero bound  To circumvent this problem, the Fed decided to use nontraditional methods to provide additional monetary policy stimulus  First, the Federal Reserve introduced a number of emergency credit facilities to provide increased liquidity directly to financial firms and markets  The first facility was introduced in December 2007, and several were added after the worsening of the crisis in September 2008  These facilities were designed to fill perceived gaps between open market operations and the discount window, and most of them were designed to provide short-term loans backed by collateral that exceeded the value of the loan  A number of the recipients were nonbanks that are outside the regulatory umbrella of the Federal Reserve; this marked the first time that the Fed had lent to nonbanks since the Great Depression  The Fed authorized these actions under Section 13(3) of the Federal Reserve Act, a seldom-used emergency provision that allowed it to extend credit to nonbank financial institutions and to nonfinancial firms as well  The Fed provided assistance through liquidity facilities, which included both the traditional discount window and the newly created emergency facilities mentioned above, and through direct support to prevent the failure of two specific institutions, American International Group (AIG) and Bear Stearns  The amount of assistance provided was an order of magnitude larger than normal Fed lending, as shown in Figure 1   Total assistance from the Federal Reserve at the beginning of August 2007 was approximately $234 million provided through liquidity facilities, with no direct support given  In mid-December 2008, this number reached a high of $1 6 trillion, with a near-high of $108 billion given in direct support  From that point on, it fell steadily  Assistance provided through liquidity facilities fell below $100 billion in February 2010, when many facilities were allowed to expire, and support to specific institutions fell below $100 billion in January 2011  The last loan from the crisis was repaid on October 29, 2014  Central bank liquidity swaps (temporary currency exchanges between the Fed and central foreign banks) are the only facility created during the crisis still active, but they have not been used on a large scale since 2012  All assistance through expired facilities has been fully repaid with interest  In 2010, the Dodd-Frank Act changed Section 13(3) to rule out direct support to specific institutions in the future  From the introduction of its first emergency lending facility in December 2007 to the worsening of the crisis in September 2008, the Fed sterilized the effects of lending on its balance sheet (i e , prevented the balance sheet from growing) by selling an offsetting amount of Treasury securities  After September 2008, assistance exceeded remaining Treasury holdings, and the Fed allowed its balance sheet to grow  Between September 2008 and November 2008, the Fed's balance sheet more than doubled in size, increasing from less than $1 trillion to more than $2 trillion  The loans and other assistance provided by the Federal Reserve to banks and nonbank institutions are considered assets on this balance sheet because they represent money owed to the Fed  With the federal funds rate at its zero bound and direct lending falling as financial conditions began to normalize in 2009, the Fed faced the decision of whether to try to provide additional monetary stimulus through unconventional measures  It did so through two unconventional tools—large-scale asset purchases (quantitative easing) and forward guidance  With short-term rates constrained by the zero bound, the Fed hoped to reduce long-term rates through large-scale asset purchases, which were popularly referred to as quantitative easing (QE)  Between 2009 and 2014, the Fed undertook three rounds of QE, buying U S  Treasury securities, agency debt, and agency mortgage-backed securities (MBS)  These securities now comprise most of the assets on the Fed's balance sheet  To understand the effect of quantitative easing on the economy, it is first necessary to describe its effect on the Fed's balance sheet  In 2009, the Fed's emergency lending declined rapidly as market conditions stabilized, which would have caused the balance sheet to decline if the Fed took no other action  Instead, asset purchases under the first round of QE (QE1) offset the decline in lending, and from November 2008 to November 2010, the overall size of the Fed's balance sheet did not vary by much  Its composition changed because of QE1, however—the amount of Fed loans outstanding fell to less than $50 billion at the end of 2010, whereas holdings of securities rose from less than $500 billion in November 2008 to more than $2 trillion in November 2010  The second round of QE, QE2, increased the Fed's balance sheet from $2 3 trillion in November 2010 to $2 9 trillion in mid-2011  It remained around that level until September 2012, when it began rising for the duration of the third round, QE3  It was about $4 5 trillion (comprised of $2 5 trillion of Treasury securities, $1 7 trillion MBS, and $0 4 trillion of agency debt) when QE3 ended in October 2014, and has remained at that level since  Table 1 summarizes the Fed's QE purchases  In total, the Fed's balance sheet increased by more than $2 5 trillion over the course of the three rounds of QE, making it about five times larger than it was before the crisis  This increase in the Fed's assets must be matched by a corresponding increase in the liabilities on its balance sheet  The Fed's liabilities mostly take the form of currency, bank reserves, and cash deposited by the U S  Treasury at the Fed  QE has mainly resulted in an increase in bank reserves, from about $46 billion in August 2008 to $820 billion at the end of 2008  Since October 2009, bank reserves have exceeded $1 trillion, and they have been between $2 5 trillion and $2 8 trillion since 2014  The increase in bank reserves can be seen as the inevitable outcome of the increase in assets held by the Fed because the bank reserves, in effect, financed the Fed's asset purchases and loan programs  Reserves increase because when the Fed makes loans or purchases assets, it credits the proceeds to the recipients' reserve accounts at the Fed  The intended purpose of QE was to put downward pressure on long-term interest rates  Purchasing long-term Treasury securities and MBS should directly reduce the rates on those securities, all else equal  The hope is that a reduction in those rates feeds through to private borrowing rates throughout the economy, stimulating spending on interest-sensitive consumer durables, housing, and business investment in plant and equipment  Indeed, Treasury and mortgage rates have been unusually low since the crisis compared with the past few decades, although the timing of declines in those rates does not match up closely to the timing of asset purchases  Determining whether QE reduced rates more broadly and stimulated interest-sensitive spending requires controlling for other factors, such as the weak economy, which tends to reduce both rates and interest-sensitive spending  The increase in the Fed's balance sheet has the potential to be inflationary because bank reserves are a component of the portion of the money supply controlled by the Fed (called the monetary base ), which grew at an unprecedented pace during QE  In practice, overall measures of the money supply have not grown as quickly as the monetary base, and inflation has remained below the Fed's goal of 2% for most of the period since 2008  The growth in the monetary base has not translated into higher inflation because bank reserves have mostly remained deposited at the Fed and have not led to increased lending or asset purchases by banks  Another concern is that by holding large amounts of MBS, the Fed is allocating credit to the housing sector, putting the rest of the economy at a disadvantage compared with that sector  Advocates of MBS purchases note that housing was the sector of the economy most in need of stabilization, given the nature of the crisis (this argument becomes less persuasive as the housing market continues to rebound); that MBS markets are more liquid than most alternatives, limiting the potential for the Fed's purchases to be disruptive; and that the Fed is legally permitted to purchase few other assets, besides Treasury securities  On October 29, 2014, the Fed announced that it would stop making large-scale asset purchases at the end of the month  Now that QE is completed, attention has turned to the Fed's "exit strategy" from QE and zero interest rates  The Fed laid out its plans to normalize monetary policy in a statement in September 2014  It plans to continue implementing monetary policy by targeting the federal funds rate  The basic challenge to doing so is that the Fed cannot effectively alter the federal funds rate by altering reserve levels (as it did before the crisis) because QE has flooded the market with excess bank reserves  In other words, in the presence of more than $2 trillion in bank reserves, the market-clearing federal funds rate is close to zero even if the Fed would like it to be higher  The most straightforward way to return to normal monetary policy would be to remove those excess reserves by shrinking the balance sheet through asset sales  The Fed does not intend to sell any securities, however  Instead, it is gradually reducing the balance sheet by ceasing to roll over securities as they mature, which began in September 2017—almost three years after QE ended  Initially, it allowed only $6 billion of Treasuries and $4 billion of MBS to run off each month, which was gradually increased to $30 billion of Treasuries and $20 billion of MBS per month, where it will remain until normalization is completed  The Fed believes that it would only cease shrinking the balance sheet or use QE again in the future if it its ability to stimulate the economy using reductions in the federal funds rate were insufficient  The Fed intends to ultimately reduce the balance sheet until it holds "no more securities than necessary to implement monetary policy efficiently and effectively " The Fed has stated that it foresees a balance sheet size that is consistent with this goal will be larger than it was before the crisis  In part, that is because other liabilities on the Fed's balance sheet are larger—there is more currency in circulation now than there was before the crisis, and the Treasury has kept larger balances on average in its account at the Fed  But the balance sheet will also be significantly larger because the Fed decided in January 2019 to continue using its new method of targeting the federal funds rate even after normalization is completed  Under the new method, the federal funds rate is not determined by supply and demand in the market for bank reserves, and the Fed would prefer to maintain abundant bank reserves so that it does not have to use open market operations to respond to changes in banks' demand for reserves  By contrast, if it went back to the pre-crisis method of targeting the federal funds rate, only minimal excess reserve balances would be necessary (but perhaps more than before the crisis), so its balance sheet could be much smaller  The Fed has not yet announced when the wind-down will be completed or how large the balance sheet would be upon completion, but the January 2019 FOMC minutes noted the wind-down could be completed as soon as this year  In that case, the balance sheet would not be much smaller than its current size of $4 trillion when normalization is completed—more than four times larger than its pre-crisis size  Although the Fed has stated that it intends to eventually stop holding MBS, the Fed would still have sizable MBS holdings in 2025, according to projections from the New York Fed  In order to raise the federal funds rate in the presence of large reserves, the Fed has raised the two market interest rates that are close substitutes—it has directly raised the rate it pays banks on reserves held at the Fed and used large-scale reverse repurchase agreements (repos) to alter repo rates  In 2008, Congress granted the Fed the authority to pay interest on reserves  Because banks can earn interest on excess reserves by lending them in the federal funds market or by depositing them at the Fed, raising the interest rate on bank reserves should also raise the federal funds rate  In this way, the Fed can lock up excess liquidity to avoid any potentially inflationary effects because reserves kept at the Fed cannot be put to use by banks to finance activity in the broader economy  In practice, the interest rate that the Fed has paid banks on reserves has been slightly higher than the federal funds rate, which some have criticized as a subsidy to banks  Reverse repos are another tool for draining liquidity from the system and influencing short-term market rates  They drain liquidity from the financial system because cash is transferred from market participants to the Fed  As a result, interest rates in the repo market, one of the largest short-term lending markets, rise  The Fed has long conducted open market operations through the repo market, but since 2013 it has engaged in a much larger volume of reverse repos with a broader range of nonbank counterparties, including the government-sponsored enterprises (such as Fannie Mae and Freddie Mac) and certain money market funds, through a new Overnight Reverse Repurchase Operations Facility  The Fed is currently not capping the amount of overnight reverse repos offered through this facility  There has been some concern about the potential ramifications of the Fed becoming a dominant participant in this market and expanding its counterparties  For example, will counterparties only be willing to transact with the Fed in a panic, and will the Fed be exposed to counterparty risk with nonbanks that it does not regulate? The Fed has distinct roles as a central bank and a regulator  Its main regulatory responsibilities are as follows: B ank regulation   The Fed supervises bank holding companies (BHCs) and thrift holding companies (THCs), which include all large and thousands of small depositories, for safety and soundness  The Dodd-Frank Act requires the Fed to subject BHCs with more than $50 billion in consolidated assets to enhanced prudential regulation (i e , stricter standards than are applied to similar firms) in an effort to mitigate the systemic risk they pose  The Fed is also the prudential regulator of U S  branches of foreign banks and state banks that have elected to become members of the Federal Reserve System  Often in concert with the other banking regulators, it promulgates rules and supervisory guidelines that apply to banks in areas such as capital adequacy, and examines depository firms under its supervision to ensure that those rules are being followed and those firms are conducting business prudently  The Fed's supervisory authority includes consumer protection for banks under its jurisdiction that have $10 billion or less in assets  P rudential regulat ion of nonbank systemically important financial institutions   The Dodd-Frank Act allows the Financial Stability Oversight Council (FSOC) to designate nonbank financial firms as systemically important (SIFIs)  Designated firms are supervised by the Fed for safety and soundness  Since enactment, the number of designated firms has ranged from four, initially, to none today  R egulation of the payment system   The Fed regulates the retail and wholesale payment system for safety and soundness  It also operates parts of the payment system, such as interbank settlements and check clearing  The Dodd-Frank Act subjects payment, clearing, and settlement systems designated as systemically important by the FSOC to enhanced supervision by the Fed (along with the Securities and Exchange Commission and the Commodity Futures Trading Commission, depending on the type of system)  M argin requirements   The Fed sets margin requirements on the purchases of certain securities, such as stocks, in certain private transactions  The purpose of margin requirements is to mandate what proportion of the purchase can be made on credit  The Fed attempts to mitigate systemic risk and prevent financial instability through these regulatory responsibilities, as well as through its lender of last resort activities and participation on the FSOC (whose mandate is to identify risks and respond to emerging threats to financial stability)  The Fed has focused more on attempting to mitigate systemic risk through its regulations since the financial crisis, and has also restructured its internal operations to facilitate a macroprudential approach to supervision and regulation 


Report 2: Geographic shifts in the veterans’ population, changes in health care delivery, an aging infrastructure, and limited stakeholder involvement affect VA’s efforts to align its services and real property portfolio to meet the needs of veterans  For example, there has been a shift over time from inpatient to outpatient care  This shift will likely result in underutilized space once used for inpatient care  In such instances, it is often difficult and costly for VA to modernize, renovate, and retrofit these older facilities  In June 2017, VA reported that its facility inventory includes 430 vacant or mostly vacant buildings that are, on average, more than 60 years old, and an additional 784 buildings that are underutilized  The historic status of some VA facilities adds to the complexity of converting or disposing of them  In 2014, VA reported holding 2,957 historic buildings, structures, or land parcels—the third most in the federal government after DOD and the Department of the Interior  In some instances, it may be more expensive to renovate than to demolish and rebuild outdated facilities  In other cases, however, there may not be an option to demolish if these buildings are designated as historic  For example, planning officials at four medical facilities in our review told us that state historic preservation efforts prevented the VA from demolishing vacant buildings, even though these buildings require upkeep costs and pose potential safety hazards  (See fig  1 ) VA has also encountered challenges to its facility alignment efforts, in part, because it has not consistently followed best practices for effectively engaging stakeholders  VA may align its facilities to meet veterans’ needs by expanding or consolidating facilities or services  Stakeholders— including veterans; local, state, and federal officials; Veterans Service Organizations; historic preservation groups; VA staff; and Congress— often view changes as working against their interests or those of their constituents, especially when services are eliminated or shifted from one location to another  We found that VA has not consistently engaged with stakeholders, and, in some cases, this inconsistency resulted in adversarial relationships that reduced VA’s ability to better align facilities with the needs of the veteran population  In our April 2017 report, we recommended that VA improve stakeholder communication guidance and evaluate its efforts  VA agreed with our recommendations and outlined a plan to implement them  Two of the planning processes VA uses to align its facilities—VA’s Strategic Capital Investment Planning (SCIP) and the VA Integrated Planning (VAIP)—have limitations  VA relies on the SCIP process to plan and prioritize capital projects system-wide, but SCIP’s limitations—including subjective narratives, long timeframes, and restricted access to information—undermine VA’s ability to achieve its goals  For example, the time between when planning officials at VA medical facilities begin developing the SCIP narratives and when they are notified that a project is funded has taken between 17 and 23 months over the past 6 fiscal-year’s SCIP submissions  (See fig  2 ) As such, VA routinely asks its facility planners to submit their next year’s planned project narratives before knowing if their project submissions from the previous year have been funded  An official from the office that oversees SCIP told us that the timing of the budgeting process, which is outside VA’s control, contributes to these delays  While these aspects are outside of VA’s control, VA has chosen to wait about 6 to 10 months to report the results of the SCIP scoring process to the medical facilities  This situation makes it difficult for local officials to understand the likelihood that their projects will receive funding  A VA official said that for future SCIP cycles, VA plans to release the scoring results for minor construction and non-recurring maintenance projects to local officials earlier in the process  At the time of our review, however, the official did not have a time frame for when VA would do this  Although VA acknowledges many of these limitations, it has taken little action in response  Federal standards for internal control state that agencies should evaluate and determine appropriate corrective action for identified limitations on a timely basis  If VA does not address known limitations with the SCIP process, it will not have reasonable assurance that SCIP can be used to accurately identify the capital necessary to address VA’s service and infrastructure gaps  In our April 2017 report, we recommended that VA address identified limitations to the SCIP process, including limitations to scoring and approval, and access to information  VA concurred with the recommendation to the extent the limitations were within its control  While VA has taken some actions, the recommendation remains open  The VAIP process produces a market-level health services delivery plan for each Veterans Integrated Service Network (VISN) and a facility master plan for each medical facility  VA has estimated the entire process to create plans for VISNs and facilities to cost $108 million when fully complete  However, the VAIP process’s facility master plans assume all future growth in services will be provided directly through VA facilities  This assumption is not accurate given that (1) VA obligated about $10 1 billion to purchase care from non-VA providers in fiscal year 2015 and (2) VA can provide care directly through its medical facilities or purchase health care services from non-VA providers through both the Non-VA Medical Care Program (referred to as “care in the community” by VA) and clinical contracts  The Office of Management and Budget’s acquisition guidance notes that investments in major capital assets should be made only if no alternative private sector source can support the function at a lower cost  In our April 2017 report, we recommended that VA assess the value of the VAIP’s facility master plans as a facility-planning tool, and based on conclusions from the review, to either (1) discontinue the development of VAIP’s facility master plans or (2) address the limitations of VAIP’s facility master plans  VA concurred with the recommendation, and in August 2017, VA noted that it has discontinued its VAIP facility master plans while VA pursues a national realignment strategy, after which it plans to adjust its future facility master plans to incorporate pertinent information, including care in the community realignment opportunities  As Congress evaluates proposed legislation for disposing of or realigning VA property, it may wish to consider seven elements DOD relied on as it developed its recommendations for the BRAC Commission  Establish goals for the process  The Secretary of Defense emphasized the importance of transforming the military to make it more efficient as part of the 2005 BRAC round  Other goals for the 2005 BRAC process included fostering jointness among the four military services, reducing excess infrastructure, and producing savings  Prior rounds focused more on reducing excess infrastructure and producing savings  Develop criteria for evaluating closures and realignments  DOD proposed selection criteria, which were made available for public comment via the Federal Register  Ultimately, Congress enacted the final BRAC selection criteria in law with minor modification and specified that four selection criteria, known as the “military value criteria,” were to be given priority in developing closure and realignment recommendations  Further, Congress required that the Secretary of Defense develop and submit to Congress a force structure plan that described the estimated size of major military units needed to address probable threats to national security for the 20- year period beginning in 2005, along with a comprehensive inventory of global military installations  In authorizing the 2005 BRAC round, Congress specified that the Secretary of Defense publish a list of recommendations for the closure and realignment of military installations inside the United States based on the statutorily-required 20-year force structure plan and infrastructure inventory, and on the final selection criteria  Estimate costs and savings to implement closure and realignment recommendations  To address the cost and savings criteria, DOD developed and used the Cost of Base Realignment Actions (COBRA) model, a quantitative tool that DOD has used since the 1988 BRAC round to provide consistency in potential cost, savings, and return-on-investment estimates for closure and realignment options  We found the COBRA model to be a generally reasonable estimator for comparing potential costs and savings among alternatives  (See fig  3 ) As with any model, the quality of the output from COBRA was a direct function of the data DOD included in the model  Also, DOD’s COBRA model relied to a large extent on standard factors and averages and did not represent budget quality estimates that were developed once BRAC decisions were made and detailed implementation plans were developed  Nonetheless, the financial information provided important input into the selection process as decision makers weighed the financial implications—along with military value criteria and other considerations—in arriving at final decisions about the suitability of various closure and realignment options  Establish an organizational structure  The Office of the Secretary of Defense emphasized the need for joint cross-service groups to analyze common business-oriented functions  For the 2005 BRAC round, as for the 1993 and 1995 rounds, these joint cross-service groups performed analyses and developed closure and realignment options in addition to those developed by the military departments  Our evaluation of DOD’s 1995 BRAC round found that few cross- service recommendations were made, in part because of the lack of high-level leadership to encourage consolidations across the departments’ functions  In the 1995 BRAC round, the joint cross- service groups submitted options through the military services for approval, but few were approved  The number of approved recommendations that the joint cross-service groups developed significantly increased in the 2005 BRAC round  This increase was, in part, because high-level leadership ensured that the options were approved not by the military departments but rather by a DOD senior- level group, known as the Infrastructure Steering Group  As shown in figure 4, the Infrastructure Steering Group was placed organizationally on par with the military departments  Establish a common analytical framework  To ensure that the selection criteria were consistently applied, the Office of the Secretary of Defense, the military departments, and the seven joint cross- service groups first performed a capacity analysis of facilities and functions  Before developing the candidate recommendations, DOD’s capacity analysis relied on data calls to hundreds of locations to obtain certified data to assess such factors as maximum potential capacity, current capacity, current usage, and excess capacity  Then, the military departments and joint cross-service groups performed a military value analysis for the facilities and functions based on primary military value criteria, which included a facility’s or function’s current and future mission capabilities, physical condition, ability to accommodate future needs, and cost of operations  Develop BRAC oversight mechanisms to improve accountability for implementation  In the 2005 BRAC round, the Office of the Secretary of Defense for the first time required the military departments to develop business plans to better inform the Office of the Secretary of Defense of the status of implementation and financial details for each of the BRAC 2005 recommendations  These business plans included: (1) information such as a listing of all actions needed to implement each recommendation; (2) schedules for personnel relocations between installations; and (3) updated cost and savings estimates by DOD based on current information  This approach permitted senior-level intervention if warranted to ensure completion of the BRAC recommendations by the statutory completion date  Involve the audit community to better ensure data accuracy  The DOD Inspector General and military department audit agencies played key roles in identifying data limitations, pointing out needed corrections, and improving the accuracy of the data used in the process  In their oversight roles, the audit organizations, which had access to relevant information and officials as the process evolved, helped to improve the accuracy of the data used in the BRAC process and thus strengthened the quality and integrity of the data used to develop closure and realignment recommendations  For example, the auditors worked to ensure certified information was used for BRAC analysis and reviewed other facets of the process, including the various internal control plans, the COBRA model, and other modeling and analytical tools that were used in the development of recommendations  We identified two key challenges that affected DOD’s implementation of BRAC 2005 and would need to be addressed for VA to adopt a BRAC- like process for its asset and infrastructure review  Some transformational-type BRAC recommendations required sustained senior leadership attention and a high level of coordination among many stakeholders to complete by the required date  Implementation of some transformational BRAC recommendations—especially those where a multitude of organizations had roles to play to ensure the achievement of the goals of the recommendation—illustrated the need to involve key stakeholders and effective planning  For example, the Defense Logistics Agency committed sustained high-level leadership and included relevant stakeholders to address implementation challenges faced with the potential for disruptions to depot operations during implementation of the BRAC consolidation recommendation  To implement the BRAC recommendations, the agency had to develop strategic agreements with the services that ensured that all stakeholders agreed on its plans for implementation, and had to address certain human capital and information technology challenges  Large number of actions and interdependent recommendations complicated the implementation process  The large number and variety of BRAC actions presented challenges during implementation  The BRAC 2005 round had more individual actions (813) than the four prior rounds combined (387)  The executive staff of the Commission told us that it was more difficult to assess the costs and the amount of time for the savings to offset the implementation costs since many of the recommendations contained multiple interdependent actions, all of which needed to be reviewed  Specifically, many of the BRAC 2005 recommendations were interdependent and had to be completed in a sequential fashion within the statutory implementation period  In cases where interdependent recommendations required multiple relocations of large numbers of personnel, delays in completing one BRAC recommendation had a cascading effect on the implementation of other recommendations  Specifically, DOD had to synchronize the relocations of over 123,000 people with about $24 7 billion in new construction or renovation  Commission officials told us that in prior BRAC rounds each base was handled by a single integrated recommendation  However, in BRAC 2005, many installations were simultaneously affected by multiple interconnected BRAC recommendations  Given the complexity of interdependent recommendations, the Office of the Secretary of Defense required the military departments and defense agencies to provide periodic updates on implementation challenges and progress  Chairman Roe, Ranking Member Walz, and Members of the Committee, this concludes our prepared statement  We are happy to answer any questions related to our work on VA’s efforts to align its medical facilities and services or on DOD’s BRAC process  If you or your staff members have any questions concerning this testimony, please contact David Wise at (202) 512-2834 or wised@gao gov regarding federal real property, or Brian Lepore at (202) 512-4523 or leporeb@gao gov regarding the BRAC process  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement  Other individuals who made key contributions to this testimony include Keith Cunningham, Assistant Director; Gina Hoffman, Assistant Director; Tracy Barnes; Jeff Mayhew; Kevin Newak; Richard Powelson; Malika Rice; Jodie Sandel; Eric Schwab; Amelia M  Weathers; and Crystal Wesco  This is a work of the U S  government and is not subject to copyright protection in the United States  The published product may be reproduced and distributed in its entirety without further permission from GAO  However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately 

ground_truth: Congress has delegated responsibility for monetary policy to the Federal Reserve (the Fed), the nation's central bank, but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of "maximum employment, stable prices, and moderate long-term interest rates." To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation. The Fed's control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time to mitigate the effects of the financial crisis and its aftermath. Starting in December 2015, the Fed has been raising interest rates and expects to gradually raise rates further. The Fed raised rates once in 2016, three times in 2017, and four times in 2018, by 0.25 percentage points each time. In light of increased economic uncertainty and financial volatility, the Fed announced in January 2019 that it would be "patient" before raising rates again. The Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, it causes capital flows that affect the exchange rate between foreign currencies and the dollar, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions. The Fed's relative independence from Congress and the Administration has been justified by many economists on the grounds that it reduces political pressure to make monetary policy decisions that are inconsistent with a long-term focus on stable inflation. But independence reduces accountability to Congress and the Administration, and recent legislation and criticism of the Fed by the President has raised the question about the proper balance between the two. While the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed's balance sheet was $4.5 trillion—five times its precrisis size. After QE ended, the Fed maintained the balance sheet at the same level until September 2017, when it began to very gradually reduce it to a more normal size. The Fed has raised interest rates in the presence of a large balance sheet through the use of two new tools—by paying banks interest on reserves held at the Fed and by engaging in reverse repurchase agreements (reverse repos) through a new overnight facility. In January 2019, the Fed announced that it would continue using these tools to set interest rates permanently, in which case the balance sheet may not get much smaller than its current size of $4 trillion. With regard to its mandate, the Fed believes that unemployment is currently lower than the rate that it considers consistent with maximum employment, and inflation is close to the Fed's 2% goal by the Fed's preferred measure. Even after recent rate increases, monetary policy is still considered expansionary. This monetary policy stance is unusually stimulative compared with policy in this stage of previous expansions, and is being coupled with a stimulative fiscal policy (larger structural budget deficit). Debate is currently focused on how quickly the Fed should raise rates. Some contend the greater risk is that raising rates too slowly at full employment will cause inflation to become too high or cause financial instability, whereas others contend that raising rates too quickly will cause inflation to remain too low and choke off the expansion.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: On February 12, 2018, the Trump Administration submitted to Congress its FY2019 budget request, which included $41 86 billion of base (or enduring) funds for the Department of State, Foreign Operations, and Related Programs (SFOPS)  Of that amount, $13 26 billion would have been for State operations, international broadcasting, and related agencies and $28 60 billion for foreign operations  Comparing the request with the FY2018 actual SFOPS funding levels, the FY2019 request represented a 23 3% decrease in SFOPS funding  The proposed State and related agency funding would have been 18 7% below FY2018 funding levels, and the foreign operations funding would have been reduced by 25 2%  The Consolidated Appropriations Act, 2019 ( P L  116-6 ), signed into law on February 15, included a total of $54 377 billion for SFOPS accounts, a 0 3% decrease over the FY2018 funding level and about 30% more than the Administration's request  An account-by-account comparison of the SFOPS request with the FY2018 actual funding and FY2019 enacted appropriation is provided in Appendix A   International Affairs 150 function funding levels are detailed in Appendix B   A chart depicting the components of the SFOPS appropriations bill is in Appendix C   A glossary is provided in Appendix D   The appropriations process for FY2019 was shaped by the Bipartisan Budget Act of 2018 (BBA, H R  1892 , P L  115-123 ), which Congress passed on February 9, 2018  The act raised the overall revised discretionary spending limits set by the Budget Control Act of 2011 (BCA, P L  112-25 ) from $1 069 trillion for FY2017 to $1 208 trillion for FY2018 and to $1 244 trillion for FY2019  The BBA increased FY2019 defense funding levels by $85 billion, from $562 billion to $647 billion, and nondefense funding (including SFOPS) by $68 billion, from $529 billion to $597 billion  It also extended direct spending reductions from FY2021 in the original BCA through FY2027, as amended  Every year since FY2012, the Administration has distinguished SFOPS spending as either enduring (base) funds or those to support overseas contingency operations (OCO)  The OCO designation gained increased significance with enactment of the BCA, which specified that emergency or OCO funds do not count toward the spending limits established by the act  In early years of requesting OCO funds, the Obama Administration described OCO requests for "extraordinary, but temporary, costs of the Department of State and USAID in Iraq, Afghanistan, and Pakistan " Syria and other countries were added in later years, and the Trump Administration expanded OCO use in its first budget request in FY2018 to be available for longer-term, core activities and more countries  For FY2019, because the BBA raised spending limits, the Administration did not seek foreign affairs OCO funds, but requested the entire SFOPS budget within base funds  The final legislation, P L  116-6 , included $8 0 billion designated as OCO, or about 15% of enacted SFOPS funding  For funding trends, see Table 1   House and Senate SFOPS Legislation   FY2019 SFOPS legislation was introduced and approved by the full appropriations committee in each chamber  The House legislation, H R  6385 , included total SFOPS funding of $54 18 billion, 0 6% lower than FY2018 funding and 29% more than requested  The Senate proposal, S  3108 , would have provided $54 602 billion for SFOPS accounts, which is about 0 1% more than FY2018 funding and 30% more than requested  Neither bill received floor consideration in its respective chamber  Continuing Resolutions   On September 28, 2018, the President signed into law P L  115-245 , legislation which included the Continuing Appropriations Act, 2019 (CR) to continue funding for SFOPS accounts (among seven other appropriations that were not completed by the start of FY2019) at a prorated 2018 funding level through December 7, 2018  Funds designated as OCO in 2018 appropriations continued to be so designated for SFOPS in the CR  On December 3, 2018, Congress and the Administration extended funding through December 21, 2018 by enacting P L  115-298   After December 21, funding lapsed and a partial shutdown of the government occurred  On January 25, an agreement was reached to continue funding for SFOPS and other appropriations that had lapsed through February 15, at the FY2018 level ( P L  116-5 )  Enacted Legislation   On February 14 Congress passed, and the President later signed into law, a full year appropriation ( P L  116-6 , Division F) that included $54 38 billion in total SFOPS funding, a 0 3% decrease from the FY2018 funding level and about 30% more than the Administration's request  Of that total, $16 46 billion was for State Department operations and related agencies; $37 92 billion for foreign operations accounts  About 14 7%, or $8 0 billion, was designated as OCO  The State Department sought to cut funding for the Department of State and Related Agency category by 19% in FY2019 from FY2018 funding levels, to $13 26 billion  Conversely, both the House and Senate committee bills sought to maintain funding near previous fiscal year levels  The House committee bill would have increased funding in this category to $16 38 billion, or 0 4% above the FY2018 funding level  The Senate committee bill would have raised funding to $16 34 billion, around $40 million less than the House committee bill and approximately 0 1% more than the FY2018 funding level  Similar to the House and Senate committee bills, the FY2019 enacted appropriation ( P L  116-6 ) maintained funding for the State Department and Related Agency category slightly above FY2018 funding level  It provided $16 46 billion for this category, or 0 9% more than the F2018 level  The State Department's request sought to fund the entirety of this category through base (or enduring) funding  Following passage of the BBA and the resulting increase in discretionary spending cap levels for FY2018 and FY2019, the State Department moved the $3 69 billion request for Overseas Contingency Operations (OCO) in this category into the base budget request  Both the House and Senate committee bills sought to retain OCO funding within the Department of State and Related Agency category  The House committee bill would have provided $3 03 billion for OCO, or around 28% less than the FY2018 figure of $4 18 billion  The Senate committee bill would have provided $4 11 billion, which constituted about 2% less than FY2018 level  While the House committee bill would have afforded approximately $1 08 billion less for OCO than the Senate committee bill, the House committee bill provided around $1 12 billion more in enduring funding ($13 35 billion) than the Senate committee bill ($12 23 billion)  As with the House and Senate committee bills, P L  116-6 retained OCO funding for the Department of State and Related Agency category  The law provided a total of $4 37 billion for OCO, or 4 5% more than the FY2018 funding level  While the law provided more for OCO than either the Senate or House committee bills, it provided less in enduring funding ($12 09 billion)  Areas where the State Department's proposed cuts were focused included the diplomatic security accounts (the Worldwide Security Protection programmatic allocation within the Diplomatic Programs account and, separately, the Embassy Security, Construction, and Maintenance account), Contributions to International Organizations, and Contributions for International Peacekeeping Activities  In most cases, P L  116-6 , in a manner similar to the House and Senate committee bills, maintained annual budget authority for these accounts closer to the FY2018 funding levels than the Administration requested (see following sections for more detailed analysis)  The State Department also requested $246 2 million to implement the Leadership and Modernization Impact Initiative, which serves as the implementation phase of the department's "Redesign" efforts  While neither the House nor the Senate committee bill directly addressed the Impact Initiative, both included provisions enabling Congress to conduct oversight of any broader reorganization efforts at the department  The enacted legislation, P L  116-6 , took the same approach  Table 3 provides an overview of proposed changes to selected accounts within the State Department and Related Agency category  Under the State Department's budget request, the Diplomatic Programs account, which is the State Department's principal operating appropriation, would have declined by 11% from the FY2018 funding level of $8 82 billion, to $7 81 billion  According to the State Department, this account provides funding for "core people, infrastructure, security, and programs that facilitate productive and peaceful U S  relations" with foreign governments and international organizations  The House and Senate committee bills would have provided $8 80 billion and $8 92 billion, respectively, for Diplomatic Programs  For FY2019 enacted, P L  116-6 provided $9 17 billion, or 4% more than the FY2018 funding level and 17% more than the State Department's request  In Section 7081 of the Consolidated Appropriations Act, 2017 ( P L  115-31 ), Congress authorized the establishment of a new "Consular and Border Security Programs" (CBSP) account into which consular fees shall be deposited for the purposes of administering consular and border security programs  As a result, consular fees retained by the State Department to fund consular services will be credited to this new account  The State Department thus requested that Congress rename the former Diplomatic and Consular Programs account "Diplomatic Programs " However, because many consular fees are generated and retained by the State Department to administer consular programs, they do not comprise part of the department's annual appropriations and therefore do not count against overall funds appropriated annually for this account  The FY2019 enacted legislation, P L  116-6 , authorized the renaming of Diplomatic and Consular Programs to Diplomatic Programs, as did the House and Senate committee bills  The Diplomatic Programs account provides funds for a large share of U S  direct hire positions, including but not limited to State Department Foreign Service and Civil Service officers  Although the Trump Administration lifted the federal hiring freeze upon issuance of OMB M-17-22 on April 12, 2017, the State Department elected to keep its own hiring freeze in place  The Department of State released guidance in May 2018 lifting the hiring freeze and allowing the department to increase staffing to December 31, 2017 levels  Some Members of Congress expressed concern with the hiring freeze and the continued impacts of perceived personnel shortages at the Department of State  Both the House and Senate committee bills, and the committee reports accompanying those bills, included oversight provisions pertaining to State Department personnel levels  In this vein, Section 7073 of P L  116-6 required that no appropriated funds may be used to expand or reduce the size of the State Department and USAID's Civil Service, Foreign Service, eligible family member, and locally employed staff workforce from the on-board levels as of December 31, 2017 without consultation with the Committees on Appropriations and Foreign Relations of the Senate and the Committees on Appropriations and Foreign Affairs of the House of Representatives  Section 7073 also required the Secretary of State to submit reports to Congress, beginning 60 days after enactment of the law, and every 60 days thereafter until September 30, 2020, regarding the State Department's on-board personnel levels, hiring, and attrition of the Civil Service, Foreign Service, eligible family member, and locally employed staff workforce  These reports were also required to include a hiring plan for maintaining Foreign Service and Civil Service personnel numbers at not less than December 31, 2017, levels through FY2019  Among other personnel-related provisions, the joint explanatory statement accompanying this law noted that keeping personnel at these levels reflected "minimum necessary hiring" and encouraged the Secretary of State to work with Congress to increase hiring above such levels as appropriate  The Human Resources funding category within Diplomatic Programs provides funding for the Charles B  Rangel International Affairs and Thomas R  Pickering Foreign Affairs fellowship programs to promote greater diversity in the Foreign Service, as authorized by Section 47 of the State Department Basic Authorities Act (P L  84-885)  While Congress required the State Department to expand the number of fellows participating in the Rangel and Pickering programs by 10 apiece pursuant to Section 706 of the Department of State Authorities Act, 2017 ( P L  114-323 ), it has provided the department the discretion to fund these programs at levels it deems appropriate from monies appropriated for Human Resources  P L  116-6 , like the House and Senate committee bills, continued to provide such discretion to the State Department  In addition, the House committee report indicated support for department efforts to increase diversity in hiring, including through the Rangel and Pickering programs  It also encouraged the Secretary of State to explore more opportunities to further the goal of increasing workforce diversity  The Senate committee report recommended the continued expansion of the department's workforce diversity programs and directed that qualified graduates of the Rangel and Pickering programs shall be inducted into the Foreign Service  While neither P L  116-6 nor the accompanying joint explanatory statement addressed the Rangel and Pickering programs specifically or Foreign Service diversity more generally, the joint explanatory statement did not negate any of the language in the House and Senate committee reports  The Diplomatic Programs account also provides funding for a number of overseas programs  These include programs carried out by the Bureau of Conflict and Stabilization Operations and the department's regional bureaus  Activities of the department's Bureau of Medical Services, which is responsible for providing health care services to U S  government employees and their families assigned to overseas posts, are also funded through this account  Public diplomacy programs are among the overseas programs funded through Diplomatic Programs, which include the Global Engagement Center's (GEC's) countering state disinformation (CSD) program  According to the State Department, planned CSD activities, for which $20 million was requested, included "coordinating U S  government efforts in specific sub-regions; enhancing the capacity of local actors to build resilience against disinformation, including thwarting attacks on their IT systems; providing attribution of adversarial disinformation; and convening anti-disinformation practitioners, journalists, and other influencers to exchange best practices, build networks, and generate support for U S  efforts against disinformation " The House committee report registered concern regarding "foreign propaganda and disinformation that threatens United States national security, especially as carried out by China, Russia, and extremists groups" and asserted that the GEC "is expected to use a wide range of technologies and techniques to counter these campaigns," consistent with its statutory mandate  The Senate committee report recommended up to $75 4 million for the GEC, including up to $40 million for countering foreign state propaganda and disinformation  The joint explanatory statement accompanying for the FY2019-enacted legislation ( P L  116-6 ) included up to $55 4 million for the GEC and up to $20 million for CSD, a funding level for CSD identical to the department's request  Section 1284 of the National Defense Authorization Act for Fiscal Year 2019 ( P L  115-232 ) authorized the Department of Defense (DOD) to transfer not more than $60 million to the GEC for each of FY2019 and FY2020; DOD has previously transferred funds to the GEC under similar authorities  The State Department's FY2019 budget request sought to provide approximately $5 36 billion for the department's key embassy security accounts: $3 70 billion for the Worldwide Security Protection (WSP) programmatic allocation within the Diplomatic Programs account and $1 66 billion for the Embassy Security, Construction, and Maintenance (ESCM) account  The House committee bill would have provided $3 76 billion for WSP and $2 31 billion for ESCM, for a total funding level of $6 07 billion for these accounts  While the House bill would have funded the ESCM account exclusively through the base budget, it would have provided approximately $2 38 billion of overall funding for WSP through OCO  The Senate committee bill would have provided $3 82 billion for WSP and $1 92 billion for ESCM, for a total funding level of $5 74 billion  As with the House committee measure, the Senate committee bill would have funded the ESCM account with base budget funds only  For WSP, the Senate committee measure, like the House committee bill, would provide $2 38 billion of total account funds through OCO  The FY2019 enacted appropriations provided a total of $4 10 billion for WSP and $1 98 billion for ESCM, for a total funding level of $6 08 billion in budget authority for these accounts  Like the House and Senate committee bills, P L  116-6 funded ESCM exclusively through the base budget  Of the $4 10 billion provided for WSP in the law, $2 63 billion was done so through OCO  Had the Administration's request been enacted, it would have marked a decline of 2% for WSP and 28% for ESCM relative to the FY2018 figures of approximately $3 76 billion and $2 31 billion, respectively  The enacted legislation provided 9% more funding for WSP and 15% less for ESCM relative to FY2018 levels  Over the past several years, Congress has provided no-year appropriations for both WSP and ESCM, thereby authorizing the State Department to indefinitely retain appropriated funds beyond the fiscal year for which they were appropriated  As a result, the department has carried over large balances of unexpired, unobligated funds each year that it is authorized to obligate for programs within both accounts when it deems appropriate to do so  For example, for FY2018, the State Department carried over more than $7 6 billion in previously appropriated funds for ESCM  Both the House and Senate committee bills would have continued this practice with respect to WSP, and the Senate committee bill would have continued with respect to ESCM, as well  The House committee bill, if enacted, would have provided that all funds appropriated for ESCM remained available until September 30, 2023, rather than indefinitely  P L  116-6 provided no-year appropriations for WSP  For ESCM, the law stipulated that while funds for worldwide security upgrades and for purposes of acquisition and construction would remain available until expended, all other monies within this account (such as funds for preserving, maintaining, repairing, and planning for real property that State Department owns) would remain available only until September 30, 2023  The Worldwide Security Protection (WSP) allocation within the Diplomatic Programs account supports the Bureau of Diplomatic Security's (DS's) implementation of security programs located at over 275 overseas posts and 125 domestic offices of the State Department, including a worldwide guard force protecting overseas diplomatic posts, residences, and domestic offices  The State Department revisited previous assumptions for funding for the U S  security presence, which prompted it to ask for a rescission of $301 20 million for WSP OCO funds provided through the Further Continuing and Security Assistance Appropriations Act, 2017 (SAAA) ( P L  114-254 )  State Department officials noted that this funding was "intended to support diplomatic reengagements in Syria, Libya, and Yemen that were predicated on different security and political conditions " The department maintained that this proposed cancellation was based on evolving security and political conditions, and would not affect DS operations  While neither the House nor the Senate committee bill included a rescission, P L  116-6 provided for a rescission of $301 2 million of SAAA funds appropriated for Diplomatic Programs and designated them more generally for OCO  The Embassy Security, Construction, and Maintenance (ESCM) account funds the Bureau of Overseas Building Operations (OBO), which is responsible for providing U S  diplomatic and consular missions overseas with secure, safe, and functional facilities  The State Department's request included $869 54 million to provide its share of what it maintains is the $2 20 billion in annual funding that the Benghazi Accountability Review Board (ARB) recommended for the Capital Security Cost Sharing (CSCS) and Maintenance Cost Sharing (MCS) programs (the remainder of the funding is provided through consular fee revenues and contributions from other agencies)  These programs are used to fund the planning, design, and construction of new overseas posts and the maintenance of existing diplomatic facilities  The House committee report maintained that funds the House bill made available for ESCM would allow for the State Department's CSCS and MCS contributions, when combined with those from other agencies and consular fees, to exceed the ARB's annual recommended funding and support " the accelerated multi-year program to construct new secure replacement facilities for the most vulnerable embassies and consulates " The Senate committee bill stipulated that of funds made available for ESCM by it and prior acts making appropriations for SFOPS, not less than $1 02 billion shall be made available for the department's FY2019 CSCS and MCS contributions; the joint explanatory statement accompanying P L  116-6 indicated that Congress provided the same amount for this purpose for FY2019  In FY2019, OBO intended to fund four CSCS projects and one MCS project (see Table 4 )  The House committee report noted concern with the cost of new embassy and consulate compound projects, including ongoing projects in Beirut, Lebanon; Mexico City, Mexico; New Delhi, India; Erbil, Iraq; and Jakarta, Indonesia  Like Section 7004(h) of the House bill, as noted in the joint explanatory statement accompanying P L  116-6 , Congress mandated that the State Department provide more detailed reports regarding the costs of these projects than previously required  The State Department maintained that the "construction of a new U S  Embassy facility in Jerusalem is a high priority for the Administration     planning and interagency coordination for the Jerusalem Embassy move is ongoing and the department intends to realign CSCS project funding, as necessary, to execute this project " It later attached a timeframe to its intent, and the United States opened a new U S  embassy in Jerusalem in May 2018  This new embassy is located in a building that housed consular operations of the former U S  Consulate General in Jerusalem  The State Department has said that one of its next steps would be to construct an embassy annex to the current building, while also considering options for a permanent embassy over the long term  The department could choose to draw upon the unexpired, unobligated funds previously appropriated by Congress to the ESCM account for any construction expenses related to interim and permanent embassy facilities in Jerusalem  The Senate committee report requires the Secretary of State to "regularly inform the Committee" on the status of plans for a permanent New Embassy Compound in Jerusalem  Neither P L  116-6 nor its joint explanatory statement addresses this issue or negates the Senate committee report language  The State Department's FY2019 budget request included a combined request of $2 29 billion for the Contributions to International Organizations (CIO) and Contributions for International Peacekeeping Activities (CIPA) accounts, a 20% reduction from the FY2018 funding levels for these accounts  The CIO account is the source for funding for annual U S  assessed contributions to 45 international organizations, including the United Nations and its affiliated organizations and other international organizations, including the North Atlantic Treaty Organization (NATO)  The State Department's FY2019 request for CIO totaled approximately $1 10 billion  Following passage of the BBA, the department increased its request for CIO by approximately $100 million to fund a higher U S  contribution to the U N  regular budget at a rate of 20% of the overall U N  budget (the U S  assessment is 22%)


Report 2:  According to the department, U N  assessments of U S  contributions to the United Nations and its affiliated agencies exceeded the request for funds to pay these contributions  Therefore, if the department's request was enacted, the United States may have accumulated arrears to some organizations  The Contributions for International Peacekeeping Activities (CIPA) account provides U S  funding for U N  peacekeeping missions around the world that the State Department says "seek to maintain or restore international peace and security " The State Department's FY2019 request for CIPA totaled $1 20 billion  According to the department, this request "reflects the Administration's commitment to seek reduced costs by reevaluating the mandates, design, and implementation of peacekeeping missions and sharing the funding burden more fairly among U N  members " Under this request, no U S  contribution would have exceeded 25% of all assessed contributions for a single operation, which is the cap established in Section 404(b) of the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 ( P L  103-236 )  The State Department maintained that it expected that the "unfunded portion of U S  assessed expenses will be met through a combination of a reduction in the U S  assessed rate of contributions, reductions in the number of U N  peacekeeping missions, and significant reductions in the budgets of peacekeeping missions across the board " The department also requested that Congress provide two-year funds for CIPA (in other words, that Congress make funds available for both the fiscal year for which the funds were appropriated and the subsequent fiscal year) "due to the demonstrated unpredictability of the requirements in this account from year to year and the nature of multi-year operations that have mandates overlapping U S  fiscal years " The House committee bill would have provided $1 36 billion for CIO and $1 59 billion for CIPA, for a combined total of $2 95 billion for these accounts, which was 29% higher than the department's request and 4% higher than the FY2018 funding levels  The Senate committee bill would have provided $1 44 billion for CIO and $1 68 billion for CIPA, for a combined total of $3 12 billion  This figure was 36% higher than the department's request and 9% higher than the FY2018 level  The Senate committee bill included a provision not present in recent appropriations laws mandating that funds appropriated for CIO "are made available to pay not less than the full fiscal year 2019 United States assessment for each respective international organization " With regard to CIPA, both the House and Senate committee reports noted that appropriated monies were intended to support an assessed peacekeeping cost at the statutory level of 25% rather than the U N  assessed rate for the United States of 28 4%  Both committee reports called on the department to review peacekeeping missions for cost savings and work to renegotiate rates of assessment  For FY2019, P L  116-6 provided $1 36 billion for CIO and $1 55 billion for CIPA, for a total of $2 91 billion—slightly less than both the House and Senate committee bills  This figure was still 2% higher than the FY2018 figure and 27% higher than the department's request  While the law did not include the aforementioned Senate committee bill provision regarding payment of full U S  assessments for organizations funded through the CIO account, the law's joint explanatory statement noted that it assumed the payment of the full United States assessment for each relevant organization (with some exceptions, including organizations from which the United States has withdrawn) and required the Secretary of State to consult with the Committees on Appropriations with respect to any decision not to provide the full assessment for any such organization  With respect to CIPA, the joint explanatory statement noted that sufficient funds are provided for contributions to peacekeeping missions at the statutory level of 25%  The enacted legislation, like the House and Senate committee bills, provided a share of CIPA funds as two-year funds, as requested by the department  The State Department requested $246 2 million for FY2019 to implement the Leadership and Modernization Impact Initiative (hereinafter, the Impact Initiative)  The Impact Initiative constitutes the implementation phase of the State Department's "Redesign" project  Former Secretary Tillerson initiated the redesign in 2017 to implement Executive Order 13781 and Office of Management and Budget (OMB) Memorandum M-17-22, which aim to "improve the efficiency, effectiveness, and accountability of the executive branch " The Impact Initiative constitutes 16 keystone modernization projects in three focus areas: Modernizing Information Technology and Human Resources Operations; Modernizing Global Presence, and Creating and Implementing Policy; and Improving Operational Efficiencies (see Table 5 )  According to the State Department, these focus areas and modernization projects are derived from the results of the listening tour that former Secretary Tillerson launched in May 2017, which included interviews conducted with approximately 300 individuals that the department said comprised a representative cross-section of its broader workforce, and a survey completed by 35,000 department personnel that asked them to discuss the means they use to help complete the department's mission and obstacles they encounter in the process  Of the $246 2 million requested, $150 0 million was requested from the IT Central Fund (which is funded through funds appropriated by Congress to the Capital Investment Fund account and, separately, expedited passport fees) and $96 2 million from the D&CP account to implement modernization projects  Proceeds from the IT Central Fund were intended to implement projects focused on IT, including modernizing existing IT infrastructure, systems, and applications based on a roadmap to be created in FY2018 and centralizing management of all WiFi networks  Funds from the D&CP account were intended to implement modernization projects focusing on Human Resources issues, including leadership development, management services consolidation, data analytics, and workforce readiness initiatives  Like the House and the Senate committee bills and reports, neither P L  116-6 nor the joint explanatory statement accompanying the law specifically mentioned the Impact Initiative by name  However, both the law and the joint explanatory statement included provisions explicitly prohibiting the Department of State from using appropriated funds to implement a reorganization without prior consultation, notification, and reporting to Congress (for example, see Section 7073 of P L  116-6 )  Like the Senate committee bill, P L  116-6 stated that no funds appropriated for SFOPs may be used to "downsize, downgrade, consolidate, close, move, or relocate" the State Department's Bureau of Population, Refugees, and Migration  Foreign operations accounts, together with food aid appropriated through the Agriculture appropriations bill, constitute the foreign aid component of the international affairs budget  These accounts fund bilateral economic aid, humanitarian assistance, security assistance, multilateral aid, and export promotion programs  For FY2019, the Administration requested $28 60 billion for foreign aid programs within the international affairs (function 150) budget, about 28% less than the FY2018 actual funding level  None of the requested funds were designated as OCO  The FY2019 enacted appropriation provided $37 92 billion for foreign operations account, including $3 63 billion designated as OCO  Together with food aid accounts in the Agriculture appropriation, total enacted foreign aid within the international affairs budget was $39 85 billion, or 0 7% below the FY2018 actual funding level and 39% above the FY2019 request  Table 6 shows foreign aid funding by type for FY2017 and FY2018 actual, and the FY2019 request, committee-approved legislation, and enacted legislation  Account Mergers and Eliminations   The Administration aimed to simplify the foreign operations budget in part by channeling funds through fewer accounts and eliminating certain programs  These account mergers and eliminations were also proposed in the FY2018 budget request Under bilateral economic assistance, the Development Assistance (DA), Economic Support Fund (ESF), Assistance to Europe, Eurasia and Central Asia (AEECA) and Democracy Fund (DF) accounts were zero funded in the FY2019 request  Programs currently funded through these accounts would have been funded through a new Economic Support and Development Fund (ESDF) account  The proposed funding level for ESDF, $5 063 billion, was more than 36% below the FY2018 funding for the accounts it would have replaced  Fifteen countries that received DA, ESF, or AEECA in FY2017 would no longer have received funding from these accounts or from ESDF under the FY2019 request  Within multilateral assistance, the International Organizations & Programs (IO&P) account, which funds U S  voluntary contributions to many U N  entities, including UNICEF, U N  Development Program, and UN Women, would also have been zeroed out  Budget documents suggested that some unspecified activities currently funded through IO&P could have received funding through the ESDF or other accounts  Related to humanitarian assistance, the P L  480 Title II food aid account in the Agriculture appropriation would have been zero-funded and all food assistance would have been funded through the International Disaster Assistance (IDA) account, which would have nevertheless declined by about 17% from FY2018 actual funding (see " Humanitarian Assistance " section below)  The Emergency Refugee and Migration Assistance (ERMA) account would have been subsumed into the Migration and Refugee Assistance (MRA) account  Closeout of Inter-American Foundation and U S -Africa Development Foundation   The FY2019 request proposed to terminate the Inter-American Foundation (IAF) and the U S -Africa Development Foundation (ADF), independent entities that implement small U S  assistance grants, often in remote communities  The Administration proposed to consolidate all small grant programs aimed at reaching the poor under USAID, as a means of improving their integration with larger development programs and U S  foreign policy objectives, as well as improving efficiency  Funds were requested for IAF and ADF only for the purposes of an orderly closeout  Development Finance Institution   The Administration requested, for the first time in FY2019, the consolidation of the Overseas Private Investment Corporation (OPIC) and USAID's Development Credit Authority (DCA) into a new standalone Development Finance Institution (DFI)  The request called for $96 million for administrative expenses and $38 million for credit subsidies for DFI, but assumed that these expenses would be more than offset by collections, resulting in a net income of $460 million (based on OPIC's projected offsetting collections)  In addition, $56 million in ESDF funds would have been used to support DFI activities  The Administration sought congressional authority for the new standalone entity, which it described as a means of incentivizing private sector investment in development and improving the efficiency of U S  development finance programs  Both the House and Senate committee bills, as well as the enacted FY2019 appropriation, rejected these account changes, with the exception of the elimination of the ERMA account, which the House bill eliminated and the Senate and final bill funded with $1 million  All the FY2019 SFOPS legislation, including P L  116-6 , used the same bilateral account structure used for FY2018, not a new ESDF, and funded IAF and ADF at the FY2018 levels  Prior to enactment of the final FY2019 SFOPS appropriation, Congress passed the BUILD Act ( P L  115-254 ), which authorized the establishment of a new International Development Finance Corporation (IDFC), consistent with the Administration's DFI proposal  The IDFC is expected to become operational near the end of FY2019, and P L  116-6 made FY2019 appropriations for OPIC and DCA using the same account structure as in prior years, but authorized $5 million in the OPIC noncredit account to be used for transition costs  Top Country Recipients   Under the FY2019 request, top foreign assistance recipients would not have changed significantly, continuing to include strategic allies in the Middle East (Israel, Egypt, Jordan) and major global health and development partners in Africa (see Table 7 )  Israel would have seen an increase of $200 million from FY2017, reflecting a new 10-year security assistance Memorandum of Understanding  Zambia and Uganda would both have seen an 11% increase  All other top recipients would have seen reduced aid in FY2019 compared with FY2017 (comprehensive FY2018 country allocations were not yet available), though unallocated global health and humanitarian funds (added to the request after passage of the Bipartisan Budget Act of 2018) may have changed these totals  Figure 1 and Table 7 show the requested FY2019 foreign operations budget allocations by region and country  Under the FY2019 request, foreign assistance for every region would have been reduced compared to FY2018 funding  The Middle East and North Africa (MENA) region and Sub-Saharan Africa would continue to be the top regional recipients, together comprising nearly 80% of aid allocated by region ( Figure 2 )  Proposed cuts ranged from 61% in Europe and Eurasia to 2% in the MENA  Aid to Sub-Saharan Africa would have declined by 31%, aid to East Asia and Pacific by approximately half (51%), aid to South and Central Asia by about 4%, and aid to Western Hemisphere by 35%  The House bill ( H R  6385 ) and accompanying report did not provide comprehensive country and regional allocations, but did specify aid levels for some countries and regional programs, including Israel ($3 300 billion), Egypt ($1 457 billion), Jordan ($1 525 billion), Ukraine ($441 million), the U S  Strategy for Engagement in Central America ($595 million), and the Countering Russian Influence Funds ($250 million)  The Senate bill ( S  3108 ) and report specified aid allocations for several countries and regional programs, including Israel ($3 300 billion), Egypt ($1 082 billion), Jordan ($1 525 billion), Iraq ($429 million), West Bank & Gaza ($286 million), Afghanistan ($698 million), Pakistan ($271 million), Colombia ($391 million), Ukraine $426 million), U S  Strategy for Engagement in Central America ($515 million) and the Countering Russian Influence Fund ($300 million)  The enacted legislation, P L  116-6 , and the accompanying explanatory statement, specified FY2019 aid levels for several countries, including Israel ($3 300 billion), Egypt ($1 419 billion), Jordan ($1 525 billion), Iraq ($407 million), Colombia ($418 million), Mexico ($163 million), and Ukraine ($446 million), as well as for the U S  Strategy for engagement in Central America ($528 million) and the Countering Russian Influence Fund ($275 million)  The budget submission did not identify any new foreign assistance initiatives  The FY2019 request called for decreases in foreign aid funding generally while continuing to prioritize the aid sectors that have long made up the bulk of U S  foreign assistance: global health, humanitarian, and security assistance  The Administration requested $6 70 billion for global health programs in FY2019  This was a 23% reduction from the FY2018 funding level, yet global health programs would have increased slightly as a proportion of the foreign aid budget, from 22% of total aid in FY2018 to 23% in the FY2019 request, due to deeper proposed cuts elsewhere  HIV/AIDS programs, for which funding would have been cut about 27% from FY2018 actual levels, would have continued to make up the bulk (69%) of global health funding, as they have since the creation of the President's Emergency Plan for AIDS Relief (PEPFAR) in 2004  Family planning and reproductive health services (for which the Administration proposed no funding for FY2018) would have received $302 million, a 42% reduction from FY2018 funding  Assistance levels would have been reduced for every health sector compared to FY2018, including maternal and child health (-25%), tuberculosis (-31%), malaria (-11%), neglected tropical diseases (-25%), global health security (-0 1%, funded through a proposed repurposing of FY2015 Ebola emergency funds), and nutrition (-37%)  The House committee bill included $8 69 billion for global health programs, the same as FY2018 funding  While total funding would remain the same, the House proposal would have reduced funding for family planning and reproductive health by about 12% compared to FY2018, while slightly increasing funding for polio, nutrition, and maternal and child health, and more than doubling funding for global health security and emerging threats  The Senate committee bill would have funded global health programs $8 792 billion, 1 2% above the FY2018 level  No subsectors would have received reduced funding and allocations for tuberculosis, HIV/AIDS, family planning, nutrition, neglected tropical diseases and vulnerable children would all have increased slightly  While both bills included long-standing language preventing the use of appropriated funds to pay for abortions, the House bill, but not the Senate bill, also included a provision prohibiting aid to any foreign nongovernmental organizations that "promotes or performs" voluntary abortion, with some exceptions, regardless of the source of funding for such activities  P L  116-6 provides $8 84 billion for global health programs for FY2019, a 1 7% increase over FY2018 funding  Every health subsector was funded at the same or slightly higher level than in FY2018  The Trump Administration's FY2019 budget request for humanitarian assistance totaled $6 358 billion, which was roughly 32% less than FY2018 actual funding ($9 37 billion) and about 22% of the total FY2019 foreign aid request  The request included $2,800 4 million for the Migration and Refugee Assistance (MRA) account (-17% from FY2018) and $3,557 4 million for the International Disaster Assistance (IDA) account (-17%) ( Figure 2 )  As in its FY2018 request, the Administration proposed to eliminate the Food for Peace (P L  480, Title II) and Emergency Refugee and Migration Assistance (ERMA) accounts, asserting that the activities supported through these accounts can be more efficiently and effectively funded through the IDA and MRA accounts, respectively  (Congress did not adopt the proposed changes to Food for Peace for FY2018, appropriating $1 716 billion for the account through the Agriculture appropriation, but did appropriate only $1 million for ERMA, a 98% reduction from FY2017 funding ) The Administration also sought authority to transfer and merge IDA and MRA base funds (current authority only applies to OCO-designated funds)  The Administration described its IDA request as focused "on crises at the forefront of U S  security interests, such as Syria, Iraq, Yemen, Nigeria, Somalia, and South Sudan " The MRA request focused on "conflict displacement in Afghanistan, Burma, Iraq, Somalia, South Sudan, Syria and Yemen," as well as strengthening bilateral relationships with "key refugee hosting countries such as Kenya, Turkey, Jordan, Ethiopia and Bangladesh " Consistent with last year, the request suggested that the proposed funding reduction assumes that other donors will shoulder an increased share of the overall humanitarian assistance burden worldwide  The House committee bills proposed $9 145 billion for humanitarian assistance accounts, about 2% less than FY2018 funding  The total included $1 5 billion for Food for Peace from the Agriculture appropriation but would not have funded the ERMA account  The Senate committee bills proposed $9 534 billion for humanitarian assistance, about 2% more than FY2018 funding  The total included $1 716 billion for Food for Peace and $1 million for the ERMA account  Neither bill included language authorizing broad transfers and mergers between the IDA and MRA base funding account, though both bills include provisions allowing for the transfer and merger of funds from several accounts, including IDA and MRA, as an extraordinary measure in response to a severe international infectious disease outbreak  As in FY2018, Congress did not adopt the significant humanitarian aid changes proposed by the Administration  P L  116-6 provided a total of $9 534 billion for humanitarian assistance in FY2019, almost level with FY2018 funding (-0 5%), of which about 21% was designated as OCO  This total included $3 434 billion in MRA funds, $1 million for ERMA, and $4 385 billion for IDA in the SFOPS division of the bill, as well as $1 716 billion for Food for Peace in the Agriculture division  The FY2019 security assistance request within foreign operations accounts totaled $7 304 billion, a 19% reduction from the FY2018 actual funding level and about 26% of the total foreign aid request  Consistent with recent years, 63% of the entire security assistance request was for FMF aid to Israel and Egypt  However, six countries were identified in the request as joint Department of Defense (DOD) and State Department security sector assistance priorities: Philippines, Vietnam, Ukraine, Lebanon, Tunisia, and Colombia  The International Narcotics Control and Law Enforcement (INCLE) account would have been reduced by about 36% from FY2018 actual levels, Nonproliferation, Antiterrorism, Demining and Related (NADR) by 21%, and International Military Education and Training (IMET) by about 14%  In each of these cases, the Administration described the proposed reductions as concentrating resources where they offer the most value and U S  national security impact  As in the FY2018 request, the Peacekeeping Operations (PKO) account, which supports most non-U N  multilateral peacekeeping and regional stability operations, including U S  training and equipment for African militaries and funding for the U N  Support Office in Somalia (UNSOS), would have seen the biggest reduction (-46%) under the FY2019 request  This is because Administrations generally request UNSOS funds through the CIPA account, while Congress usually funds the office through the PKO account  The Foreign Military Financing (FMF) account would have been reduced by 13% compared to FY2018, with specific allocations for 11 countries and a proposed $75 million Global Fund to be allocated flexibly  This was a notable change from the FY2018 FMF request, in which funds were allocated to four countries and a larger global fund, and from FY2018-enacted funding, for which allocations were specified for more than 20 countries  The House committee bill would have provided $9 274 billion for security assistance, a 3% increase over FY2018 funding, with funding increases proposed for the INCLE (+7%) and FMF (+4%) accounts and a reduction proposed for the PKO account (-9%)  Consistent with the request, and in contrast to recent year appropriations, no security assistance funding in the House committee bill was designated as OCO  The Senate committee bill included $8 789 billion for security assistance programs, a 2 6% total decrease from FY2018 funding  The INCLE account would have increased by 2 6% while the FMF and PKO accounts would be reduced by 3% and 11%, respectively  About 16% of the security assistance funding in the Senate bill was designated as OCO  In the final FY2019 appropriation, P L  116-6 , security assistance funding totaled $9 153 billion, a 1 4% increase from FY2018  Of the total, $555 million within the PKO and FMF accounts (6% of total security funding) was designated as OCO  Funding provided for most accounts was similar to FY2018 levels, with the exception of INCLE, which increased by 9 4% in part to support increased efforts to address the flow of illegal opioids, and PKO, for which funding decreased by about 9 2%  Bilateral economic development assistance is the broad category that includes programs focused on education, agricultural development and food security, good governance and democracy promotion, microfinance, environmental management, and other sectors  While the majority of this aid is implemented by USAID, it also includes the programs carried out by the independent Millennium Challenge Corporation (MCC), Peace Corps, Inter-American Foundation and the U S -Africa Development Foundation  Excluding global health assistance, bilateral economic development assistance in the Administration's FY2019 request totaled $6 354 billion, a 33% reduction from FY2018 funding levels  Proposed FY2019 allocations for key sectors, compared with FY2018 levels prescribed in legislation, included the following: food security, $518 million (-48% from FY2018); democracy promotion programs, $1,235 million (-47% from FY2018); and education, $512 million (-51% from FY2018)  The Administration requested $800 million for MCC and $396 million for Peace Corps, representing cuts of 12% and 3%, respectively  As discussed above, the budget request also proposed to merge I-AF and USADF into USAID, and requested only small amounts of funding to close out their independent activities  The House committee bill would have provided $9 383 billion for economic development assistance and specified allocations for several development sectors, including education ($1 035 billion), conservation programs ($360 million), food security and agricultural development ($1 001 million), microenterprise and microfinance ($265 million), water and sanitation ($400 million) and democracy programs ($2 4 billion)  The Senate committee bill would have provided $9 764 billion for economic development activities and specifies allocations for education ($750 million), environment and renewable energy ($943 million), food security and agricultural development ($1 001 billion), small and micro credit ($265 million), water and sanitation ($435 million), and democracy programs ($2 4 billion), among others  Both the House and Senate bills would have funded the I-AF, USADF, Peace Corp, and MCC at the FY2018 funding level, and both bills explicitly rejected the Administration's proposal to merge I-AF and USADF into USAID  The enacted appropriation for FY2019, P L  116-6 , provided about $9 239 billion for nonhealth economic development aid  Minimum allocations specified for key sectors included $1 035 billion for education (basic and higher), $285 million for biodiversity conservation, $125 million for sustainable landscapes, $1 001 billion for food security and agricultural development, $265 million to support micro and small enterprises, $67 million to combat trafficking in persons, and $435 million for water and sanitation programs  The independent agencies were all funded at the same level as in FY2018  Appendix A  State Department, Foreign Operations, and Related Agencies Appropriations, by Account Appendix B  International Affairs Budget The International Affairs budget, or Function 150, includes funding that is not in the Department of State, Foreign Operations, and Related Programs appropriation: foreign food aid programs (P L  480 Title II Food for Peace and McGovern-Dole International Food for Education and Child Nutrition programs) are in the Agriculture Appropriations, and the Foreign Claim Settlement Commission and the International Trade Commission are in the Commerce, Justice, Science appropriations  In addition, the Department of State, Foreign Operations, and Related Programs appropriation measure includes funding for certain international commissions that are not part of the International Affairs Function 150 account  Appendix C  SFOPS Organizational Chart Appendix D  Glossary

ground_truth: VA operates one of the largest health care systems in the United States, utilizing more than 6,000 federally owned and 1,500 leased buildings. DOD has repeatedly applied the BRAC process to reduce the amount of unneeded property that it owns and leases and to save billions of dollars that could be applied to higher priority defense needs. This statement is based on GAO's April 2017 report related to VA facility alignment ( GAO-17-349 ) and numerous GAO reports related to the BRAC process as summarized in a June 2011 testimony ( GAO-11-704T ) and a March 2012 testimony ( GAO-12-513T ). This statement addresses (1) the factors that affect VA's facility alignment and the extent to which VA's capital-planning process facilitates the alignment of facilities with the veterans' population, and (2) the key elements and challenges affecting DOD and the Commission in BRAC 2005. Detailed information on our scope and methodologies for this work can be found in these published products, cited throughout this testimony. Geographic shifts in the veterans' population, changes in health care delivery, aging infrastructure, and limited stakeholder involvement affect the Department of Veterans Affairs' (VA) efforts to align its services and real property portfolio to meet the needs of veterans. For example, a shift over time from inpatient to outpatient care will likely result in underutilized space once used for inpatient care. Further, the historic status of some VA facilities adds to the complexity of converting or disposing of them. In such instances, it is often difficult and costly for VA to modernize, renovate, and retrofit these older facilities. GAO reported that two of the planning processes VA uses to align its facilities—VA's Strategic Capital Investment Planning (SCIP) and the VA Integrated Planning (VAIP)—have limitations that undermine VA's efforts to achieve its goals. Specifically: VA relies on the SCIP process to plan and prioritize capital projects, but VA routinely asks its facility planners to submit their next year's planned project narratives before knowing if their previous submissions have been funded. The overlapping budget cycle, which is outside of VA's control, combined with other SCIP limitations—including subjective narratives, long time frames, and restricted access to information—make it difficult for VA to rely on SCIP to accurately identify the capital necessary to address its service and infrastructure gaps. VA concurred that it needs to address SCIP limitations that are within its control, as GAO recommended; VA has made some progress in implementing the recommendation has made some progress in implementing the recommendation.\ The VAIP process is estimated to cost $108 million and to produce market-level service delivery plans and facility master plans. However, the VAIP master plans incorrectly assume that all future growth in services will be provided directly through VA facilities without considering alternatives, such as purchasing care from the community. GAO recommended that VA consider discontinuing the VAIP facility master plans pending an assessment of their value as a facility-planning tool. VA agreed with the recommendation and is implementing it while pursuing a national realignment strategy.. Key elements of the Department of Defense's (DOD) 2005 Base Realignment and Closure (BRAC) process could benefit VA's asset and infrastructure review. The key elements included: (1) establishing goals for the process, (2) developing criteria for evaluating closures and realignments, and (3) establishing an organizational structure to develop closure and realignment options. GAO identified key challenges that affected DOD's implementation of BRAC 2005 and the results achieved; these challenges would need to be addressed if VA is to successfully apply the process. These challenges included: (1) large, complex recommendations required sustained senior leadership's attention and a high level of coordination among many stakeholders, and (2) the large number of actions that depend on each other for successful implementation. In the April 2017 report, GAO made recommendations related to capital planning and stakeholder involvement. VA concurred with the recommendations to the extent that they were within its control and has started making improvements.