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



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



Report 2: Federal and state Medicaid spending on long-term care continues to increase; for example it increased from $146 billion in 2013 to $158 billion in 2015  Individuals seeking long-term care generally need care that is, by definition, longer term in nature and more costly than other types of care  Spending on long-term care services provided in home and community settings, including assisted living facilities, exceeds the amount spent on institutional settings such as nursing homes  State Medicaid programs may cover certain medical and non-medical services that assisted living facilities provide; however, the Medicaid statute does not provide for coverage of room and board charges of an assisted living facility  In their federal-state partnership, both CMS and states play important roles in the oversight of Medicaid  CMS is responsible for oversight of state Medicaid programs  To conduct this oversight, CMS issues program requirements in the form of regulations and guidance, approves changes states make to their programs, provides technical assistance to states, collects and reviews required information and data from states and, in some cases, reviews individual state programs  States are responsible for the day-to-day administration of their Medicaid programs, including monitoring and oversight of the different HCBS programs through which they cover assisted living services, within broad federal rules and requirements  Each state is required to identify and designate a single state agency to administer or supervise the administration of its Medicaid program  The state Medicaid agency may partially or fully delegate the administration and oversight of the state’s HCBS programs to another state agency or other entity, such as a state unit on aging, a mental health department, or other state departments or agencies with jurisdiction over a specific population or service  However, the state Medicaid agency is ultimately accountable to the federal government for compliance with the HCBS requirements  Under different authorizing provisions of federal law, states have considerable flexibility to establish multiple HCBS programs including those covering assisted living services  A state Medicaid program can have multiple HCBS programs operating under different federal authorities  CMS is responsible for ensuring that states meet the requirements associated with their HCBS programs under these different authorities  Key to states’ monitoring of the health and welfare of Medicaid beneficiaries is their tracking of, and response to, incidents that may cause harm to a beneficiary’s health or welfare, such as abuse, neglect, or exploitation—commonly referred to as critical incidents  Such monitoring is required for most HCBS programs; however, we previously found that requirements for states related to oversight of the health and welfare of beneficiaries in different types of HCBS programs varied, and recommended that CMS take steps to harmonize those requirements across programs  The most common HCBS programs with the most stringent federal requirements are HCBS waiver programs  These programs serve beneficiaries who are eligible for an institutional level of care; that is, beneficiaries must have needs that rise to the level of care usually provided in a nursing facility, hospital, or other institution  CMS oversees states’ HCBS waiver programs specifically by reviewing and approving applications and reviewing HCBS program reports that states submit  HCBS waiver program applications include specific requirements implementing various statutory and regulatory provisions  (See text box below ) One requirement is that states have the necessary safeguards in place to protect the health and welfare of beneficiaries receiving services covered by HCBS waiver programs  For each of their HCBS waiver programs, states must demonstrate to CMS that they are meeting various requirements CMS has established regarding beneficiary health and welfare  The Six Requirements States Must Demonstrate for Home- and Community-Based Services Waiver Programs 1  Administrative authority: The Medicaid agency retains ultimate administrative authority and responsibility for the operation of the waiver program by exercising oversight of the performance of waiver functions by other state and local/regional non-state agencies (if appropriate) and contracted entities  2  Level of care: The state demonstrates that it implements the processes and instrument(s) specified in its approved waiver for evaluating/re-evaluating an applicant’s/waiver participant’s level of care consistent with care provided in a hospital, nursing facility, or intermediate care facility  3  Qualified providers: The state demonstrates that it has designed and implemented an adequate system for assuring that all waiver services are provided by qualified providers  4  Service plan: The state demonstrates it has designed and implemented an effective system for reviewing the adequacy of service plans for the waiver participants  5  Health and welfare: The state demonstrates it has designed and implemented an effective system for assuring waiver participant health and welfare  6  Financial accountability: The state must demonstrate that it has designed and implemented an adequate system for insuring financial accountability of the waiver program  CMS also provides ongoing oversight of state HCBS programs through annual reports that states must submit for each of their HCBS waiver programs as well as renewal reports submitted about two years before an HCBS waiver is scheduled to end  The state reports are intended to provide CMS with information on the operation of state HCBS waiver programs  In contrast to long-term care services provided in nursing facilities, less is known at the federal level about the oversight and quality of care in assisted living facilities  Generally, states establish their own licensing and oversight requirements for assisted living facilities  As a result, the requirements for assisted living facilities and the type and frequency of oversight can vary across states  In contrast, nursing homes must meet a comprehensive set of federal requirements in order to receive payment for long-term care services for Medicaid and Medicare beneficiaries in addition to state requirements  CMS contracts with state entities to regularly inspect nursing facilities and investigate complaints to assess whether nursing homes meet these federal quality requirements  Annually CMS publishes a comprehensive report on nursing homes that serve Medicaid and Medicare beneficiaries, including the extent that beneficiaries are at risk for harm, based on these investigations and inspections  In addition, CMS publicly reports a summary of each nursing home’s quality data using a five-star quality rating based on health inspection results, staffing data, and quality measure data  The goal of this rating system is to help consumers make meaningful distinctions among high- and low-performing nursing homes  This type of standardized framework for oversight, investigation and inspections, and reporting on quality of care concerns does not exist for assisted living facilities and other types of HCBS providers  Forty-eight state Medicaid agencies reported collectively spending about $10 billion in state and federal Medicaid funds for assisted living services in 2014, according to our survey  The other 3 states reported that they did not pay for assisted living services  We estimate that this spending for services provided by assisted living facilities represents 12 4 percent of the $80 6 billion Medicaid spent on HCBS in all settings that year  More than 330,000 Medicaid beneficiaries received assisted living services, based on data reported to us by the 48 states  Nationally, the average spending per beneficiary on assisted living services in the 48 states in 2014 was about $30,000; states provided these HCBS services through fee-for-service and managed care delivery models  Fee-for-service spending comprised 81 percent of total spending on assisted living services and managed care spending was about 19 percent of the total  The cost per beneficiary reported by surveyed states also varied based on payment type; average per beneficiary cost was $31,000 for fee-for-service and $27,000 for managed care  About 21 percent of Medicaid assisted living enrollment was for beneficiaries receiving these services under a managed care delivery model  (See table 1 ) Average per-beneficiary spending varied significantly across the states  For example, for the nine states with the lowest spending per beneficiary, average Medicaid spending ranged from about $1,700 to about $9,500 per beneficiary  In contrast, in the nine states with the highest per- beneficiary spending, the average spending ranged from about $43,000 to $108,000 per beneficiary  (See Figure 1 ) For more information on each state’s enrollment, total spending, and average per beneficiary spending on assisted living services, see appendix I  The 48 states that reported covering assisted living services in 2014 said they did so through 132 different programs  The majority of the states, 31 of the 48, reported administering more than one program that covered assisted living services  As illustrated in table 2 below, of the different types of HCBS programs under which states can provide coverage for assisted living services, HCBS waivers were the most common type of program they used  Specifically, 39 states and 69 percent of the programs that provided assisted living services, were operated under the HCBS waiver program  (See appendix II for additional details on each state’s number of programs by program type and total number of HCBS programs that covered assisted living facility services in 2014 ) Almost all of the 48 states that covered assisted living services did so for two groups of Medicaid beneficiaries eligible through their programs  In 45 of 48 states, aged beneficiaries received services provided by assisted living facilities  Similarly, in 43 of 48 states, physically disabled beneficiaries received services  (See Figure 2 ) In 38 or more of the 48 states that covered assisted living services, six types of services were provided  For example, 45 states covered assistance with activities of daily living, such as bathing and dressing; 44 states covered medication administration; and 41 states covered coordination of meals  (See Figure 3 ) State Medicaid agency approaches for oversight of assisted living services varied widely in terms of who provided the oversight for their largest programs, according to their responses to our survey  Thirteen of the 48 state Medicaid agencies reported delegating administrative responsibilities, including oversight of beneficiary health and welfare, to other state or local agencies  State Medicaid agencies may delegate the administration of programs to government or other agencies through a written agreement; however, state Medicaid agencies retain the ultimate oversight responsibility for those delegated functions  For example, among the 13 states that delegated HCBS program administration, the administering agencies were those that provided services to the aged, disabled, or both of these populations, such as the states’ Departments of Aging  (See text box, below, for examples of states’ delegation ) Examples of State Medicaid Agencies’ Delegation of Authority for Administration of Home- and Community-based Services’ Programs Covering Assisted Living Services Georgia’s Elderly & Disabled Waiver Program was operated in 2014 by the Georgia Department of Human Services Division of Aging Services, a separate agency of the state that was not a division/unit of the Medicaid agency  The Georgia Medicaid Agency maintained a formal interagency agreement with the Division of Aging Services which describes by function the required deliverables to support compliance and a schedule for delivery of reports  Nebraska’s Waiver for Aged and Adults and Children with Disabilities is operated by the state Medicaid agency Division of Medicaid and Long Term Care  The majority of services are provided by independent contractors in order to allow service delivery in the rural and frontier areas of the state  The state Medicaid agency contracts with the Area Agencies on Aging, Independent Living Centers, and Early Development Network agencies to perform a variety of operational and administrative functions including authorizing services and monitoring the delivery of services  States also varied in the types of information they reported reviewing as part of the oversight of assisted living services, and the extent to which state Medicaid agencies review the information when another agency is responsible for administration  For example, other entities outside the state Medicaid agency—such as the agency delegated to administer an HCBS program, or a contractor that manages provider enrollment—may check to ensure a provider is allowed to deliver services to Medicaid beneficiaries; in such cases, however, the state Medicaid agency might not be aware of the results of such checks  As illustrated in table 3, in all 48 states the types of information generally reviewed by either the state Medicaid agency, the agency delegated administrative responsibilities, or other agencies were: critical incident reports, the HHS Office of Inspector General’s list of excluded providers, patient service plans, and information on concerns about care received directly from patients, relatives, caregivers or the assisted living facility itself  In many cases, the state Medicaid agency did not review all information sources reviewed by other agencies  For example, although all critical incident reports were reviewed in the 48 states by either the state Medicaid agency, the agency delegated administrative responsibilities, or another agency; in 16 of those states, the state Medicaid agency was not involved in those reviews, according to responses to our survey  Instead, the critical incident reports were reviewed by another entity designated responsible for the HCBS program in the state or another state entity with regulatory responsibility over the assisted living facility  Such reviews, including any critical incidents found, may not have been communicated back to the state Medicaid agency, according to responses to our survey  State Medicaid agencies also varied in reporting the extent to which they were made aware or notified when enforcement actions were taken as a result of concerns with beneficiary care identified by other entities  Various oversight actions may be taken by the state Medicaid agency, the agency delegated to administer an HCBS program, or a state regulatory agency, such as a state agency responsible for licensing and inspecting various types of HCBS providers  When delegated agencies or other licensing agencies take corrective action, the state Medicaid agency may not be aware unless notified by the agencies taking that action  For example, in 23 states, the investigation of potential incidents related to beneficiary health and welfare was delegated to another agency but in only 6 of these states was the state Medicaid agency always notified of such an investigation based on our survey  (See table 4 and text box below ) Example of a Collaborative Approach to Monitoring and Ensuring Quality Care Specifically for Assisted Living Facilities In 2009, the Wisconsin Coalition for Collaborative Excellence in Assisted Living was formed to redesign the way quality is ensured and improved for individuals residing in assisted living communities  This public/private coalition utilizes a collective impact model approach that brings together the state, the industry, the consumer, and academia to identify and implement agreed upon approaches designed to improve the outcomes of individuals living in Wisconsin assisted living communities  The core of the coalition is the implementation of an association developed, department approved, comprehensive quality assurance, quality improvement program  For their largest HCBS programs that covered assisted living services, the 48 states varied in how they monitored “critical incidents” that caused actual or potential harm to Medicaid beneficiaries in assisted living facilities  Specifically, the 48 states varied in their ability to report the number of critical incidents; how they defined incidents, and the extent to which they made information on such incidents readily available to the public  These states varied in whether they could provide us the number of critical incidents involving beneficiaries for their largest programs covering assisted living services, and for those that could report, the number of incidents they reported varied widely  In 26 of the 48 states the Medicaid agencies were unable to report, for their largest program covering assisted living services, the number of critical incidents that had occurred in assisted living facilities in 2014  The remaining 22 states reported a total of 22,921 critical incidents involving Medicaid beneficiaries in their largest programs covering assisted living services  The number of critical incidents reported in these states ranged from 1 to 8,900  For six of these states the number of critical incidents reported was more than 1,000, (See text box, below, for examples of selected state processes managing critical incidents ) Selected States’ Processes for Managing Beneficiary Harm or Potential Harm in Assisted Living Facilities Georgia: According to state officials in 2014 there was no centralized or comprehensive system for capturing and tracking the data on actual and potential violations  State officials acknowledged the lack of a centralized system prevents the Division of Community Health from tracking the status of each problem  Nebraska: According to state officials, Nebraska’s Adult Protective Services operates an electronic system that coordinates across state social service programs  When Adult Protective Services initiates an investigation of reported harm to an assisted living resident, the state Medicaid agency is automatically notified  Reasons state Medicaid agencies reported for being unable to provide us with the number of critical incidents included limitations in the data or data systems for tracking them  Nine states reported an inability to track incidents by provider type, and thus distinguish critical incidents in assisted living facilities from other providers of home and community based services  States also cited lacking a system to collect critical incidents (9 states), and that the system for reporting could not identify whether a resident was a Medicaid beneficiary (5 states)
Report 2:  Lower courts have approved as "factual and uncontroversial" within the meaning of Zauderer a variety of other commercial disclosure requirements, including regulations requiring the disclosure of: country-of-origin information for meat; calorie information at restaurants; the fact that products contain mercury; and textual and graphic warnings about the health risks of tobacco products  By contrast, in a 2015 opinion, the D C  Circuit concluded that a federal regulation requiring firms to disclose whether their products used "conflict minerals" that originated "in the Democratic Republic of the Congo or an adjoining country" could not be characterized as factual and uncontroversial  The court said that "[t]he label '[not] conflict free' is a metaphor that conveys moral responsibility for the Congo war        An issuer, including an issuer who condemns the atrocities of the Congo war in the strongest terms, may disagree with that assessment of its moral responsibility        By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment " Similarly, the Seventh Circuit, in a 2006 opinion, held that disclosure requirements in a state law regulating sexually explicit video games were not "factual and uncontroversial" as required for Zauderer to apply  In relevant part, the law required "video game retailers to place a four square-inch label with the numerals '18' on any 'sexually explicit' video game," and to post signs and provide brochures "explaining the video game rating system " The court held first that the sticker "ultimately communicates a subjective and highly controversial message—that the game's content is sexually explicit " Similarly, the panel concluded that "the message" communicated by the signs and brochures was "neither purely factual nor uncontroversial" because it was "intended to communicate that any video games in the store can be properly judged pursuant to the standards described in the       ratings " As mentioned above, some courts have treated "factual" and "uncontroversial" as two distinct requirements  But at times, courts have struggled to define "controversial," standing alone  The D C  Circuit has suggested that controversial must mean that a disclosure "communicates a message that is controversial for some reason other than dispute about simple factual accuracy " One trial court interpreting a decision of the Second Circuit suggested that "it is the nature of the regulation of compelled speech that controls, not the nature of the legislative debate that gave rise to its enactment " That court then noted that other courts had equated controversial messages with disclosures that are "opinion-based " Courts have disagreed about whether a disclosure may be characterized as "controversial" because it is "inflammatory" or "evoke[s] an emotional response " In NIFLA , the Supreme Court struck down the licensed notice after noting that the required disclosures related to "abortion, anything but an 'uncontroversial' topic," although it did not further explain when a topic is "uncontroversial" for purposes of Zauderer  Second, to be eligible for review under Zauderer , a commercial disclosure requirement must be related to the services provided by the speaker  In Zauderer itself, the Court had noted that the disputed disclosure required the attorney to provide information in his advertising "about the terms under which his services will be available " By and large, lower courts, at least prior to NIFLA, had not treated this relationship to the speaker's services as a distinct requirement  The Court in NIFLA , however, said that this was a necessary prerequisite for Zauderer review and held in that case that the notice requirement for licensed clinics at issue was not "relate[d] to the services that licensed clinics provide" because it instead provided information "about state -sponsored services " Judges have disagreed on whether there exists a third requirement for Zauderer review  In Zauderer itself, the Supreme Court noted that the disclosure requirements at issue in that case were intended to "prevent[] deception of customers " Further, when applying Zauderer review to the bankruptcy-related disclosures at issue in Milavetz , the Court stated that the disclosures were "intended to combat the problem of inherently misleading commercial advertisements " Perhaps most notably, in United Foods , the Court explained its decision not to apply Zauderer by noting that there was "no suggestion" that the compelled subsidies at issue in that case were "somehow necessary to make voluntary advertisements nonmisleading for consumers " The Supreme Court's decisions applying Zauderer have thus suggested that one factor in deciding whether to apply this "reasonably related" review is whether the targeted commercial speech is misleading, or whether the state's interest in requiring the disclosure is to prevent "consumer confusion or deception " Nonetheless, the Court has not squarely held that this is a necessary condition for Zauderer review, and several lower courts have rejected this position  The D C  Circuit concluded that Zauderer 's justification characterizing "the speaker's interest in opposing forced disclosure of such information as 'minimal' seems inherently applicable beyond" the state's "interest in remedying deception " The Second Circuit has also held that Zauderer review applies more broadly  In rejecting a litigant's argument that the Supreme Court's decision in United Foods limited Zauderer only to laws intended to prevent consumer deception, the Second Circuit said that United Foods "simply distinguishes Zauderer on the basis that the compelled speech in Zauderer was necessary to prevent deception of consumers; it does not provide that all other disclosure requirements are subject to heightened scrutiny " If a commercial disclosure requirement involves only "purely factual and uncontroversial information" about the goods or services being sold, and is therefore eligible for review under Zauderer , then it will be constitutional so long as the disclosure requirement is "reasonably related" to the government's interest  This reasonableness review is relatively lenient, especially as compared with the standards that would otherwise apply to compelled speech  But, as emphasized in NIFLA , even under Zauderer , "unjustified or unduly burdensome disclosure requirements might offend the First Amendment by chilling protected commercial speech " Lower courts had previously come to different conclusions regarding whether "unjustified or unduly burdensome" presented an additional inquiry, to be conducted separately from the reasonableness inquiry otherwise prescribed by Zauderer , or whether instead this inquiry was subsumed by the "reasonably related" inquiry  NIFLA did not entirely resolve this issue, although it did frame its analysis using the "unjustified or unduly burdensome" language rather than the language of rational basis review  In Zauderer , the Supreme Court upheld the contingent fee disclosure after concluding that the requirement was "reasonably related to the State's interest in preventing deception of consumers " But as noted above, lower courts have largely concluded that Zauderer 's reasonableness review may govern the analysis even when the government asserts an interest other than preventing consumer deception  The D C  Circuit has, so far, largely declined to articulate a clear standard for "what type of interest might suffice " That court did conclude in one case that where the government's interest was "substantial under Central Hudson 's standard," that would qualify as a sufficient interest under Zauderer   Perhaps taking a different approach, in a case upholding a disclosure requirement under Zauderer , the Second Circuit described the state's interest as "legitimate and significant " Other than "the interest in correcting misleading or confusing commercial speech," the federal courts of appeals have upheld commercial disclosure requirements where the government asserted interests in food safety, preventing obesity, "protecting human health and the environment from mercury poisoning," and in protecting health benefit providers "from questionable       business practices " By contrast, the Second Circuit held in International Dairy Foods Association v  Amestoy that "consumer curiosity alone is not a strong enough state interest to sustain the compulsion of even an accurate, factual statement " In NIFLA , the Supreme Court indicated that under Zauderer , the government must assert an interest that is "more than 'purely hypothetical '" As discussed above, the State of California's justification for the notice requiring unlicensed clinics to disclose that they were unlicensed was to "ensur[e] that pregnant women in California know when they are getting medical care from licensed professionals " The Court concluded that the state had "point[ed] to nothing suggesting that pregnant women do not already know that the covered facilities are staffed by unlicensed medical professionals " NIFLA 's requirement that the government provide evidence supporting an asserted interest differs from the Court's approach in Zauderer itself and in Milavetz   In both Zauderer and Milavetz , the Court rejected arguments that the government had failed to present sufficient evidence to support its interest in the disclosure requirement, concluding that in both of those cases, "the possibility of deception" in the regulated advertisements was "self-evident " Although the standard is not entirely clear, it is possible that in future cases the Court could conclude again that a particular advertisement is so obviously deceptive that the government does not need to submit significant evidence proving that the advertisements are misleading  If the government has asserted a sufficient interest, then under Zauderer , it needs to show only that the disputed disclosure requirement is "reasonably related" to that interest  Describing the Supreme Court's decision in Zauderer , the D C  Circuit has said that the "evidentiary parsing" required by more rigorous First Amendment tests "is hardly necessary when the government uses a disclosure mandate to achieve a goal of informing consumers about a particular product trait, assuming of course that the reason for informing consumers qualifies as an adequate interest " That court further elaborated that "[t]he self-evident tendency of a disclosure mandate to assure that recipients get the mandated information may in part explain why, where that is the goal, many such mandates have persisted for decades without anyone questioning their constitutionality " Similarly, the Second Circuit has observed in one case that "while the First Amendment precludes the government from restricting commercial speech without showing that 'the harms it recites are real and that its restriction will in fact alleviate them to a material degree,'" the First Amendment "does not demand 'evidence or empirical data' to demonstrate the rationality of mandated disclosures in the commercial context " Notwithstanding the suggestion that little evidence is required to show that a disclosure requirement is reasonably related to an appropriate government interest, lower courts have often relied on the government's evidence supporting the disputed requirement when they uphold the provision  This showing may be easiest where the government asserts an interest in preventing misleading speech, given "the self-evident tendency of a disclosure mandate to assure that recipients get the mandated information " Additionally, courts have sometimes held that commercial disclosure requirements fail even this lenient test for rationality, particularly where the government has asserted an interest other than preventing consumer confusion  For example, in National Association of Manufacturers v  SEC , the D C  Circuit held that a provision requiring companies to disclose whether their products were "conflict free" violated the First Amendment  In defending this rule, the government asserted an interest in "ameliorat[ing] the humanitarian crisis in the [Democratic Republic of the Congo (DRC)] " In the court's view, however, the government had failed to demonstrate that its measure would achieve this interest  The D C  Circuit observed that the government had "offered little substance beyond" statements by political officials to support "the effectiveness of the measure " The court assumed that the government's theory "must be that the forced disclosure regime will [lead to boycotts that] decrease the revenue of armed groups in the DRC and their loss of revenue will end or at least diminish the humanitarian crisis there " But in the view of the court, this theory could not justify the regulation, as the idea was "entirely unproven and rest[ed] on pure speculation " To take another example, the Third Circuit struck down a commercial disclosure requirement concerning attorney advertising in Dwyer v  Cappell   In that case, an attorney challenged a state regulation that prohibited attorneys from using quotations from judicial opinions in their advertising unless they presented "the full text" of those opinions  The state argued that such quotations were "inherently misleading because laypersons       would understand them to be judicial endorsements " The court, however, said that even assuming "that excerpts of judicial opinions are potentially misleading to some persons," the state had failed "to explain how [an attorney's] providing a complete judicial opinion somehow dispels this assumed threat of deception " The court reasoned that "providing a full judicial opinion does not reveal to a potential client that an excerpt of the same opinion is not an endorsement " Additionally, the court held that the disputed requirement was "unduly burdensome," as it "effectively rules out the possibility that [an attorney] can advertise with even an accurately quoted excerpt of a judicial statement about his abilities " And in the view of the Third Circuit, "that type of restriction—an outright ban on advertising with judicial excerpts—would properly be analyzed under the heightened Central Hudson standard of scrutiny " As Dwyer suggests, courts may strike down disclosure requirements under Zauderer if the requirement is "unduly burdensome " In NIFLA , the Supreme Court held that the unlicensed notice was likely unconstitutional because it "unduly burden[ed] protected speech," noting that it applied to all advertisements for these licensed facilities, regardless of their content  In particular, the majority opinion highlighted one hypothetical discussed at oral argument, noting that "a billboard for an unlicensed facility that says 'Choose Life' would have to surround that two-word statement with a 29-word statement from the government, in as many as 13 different languages " In this instance, the Court said, the notice would "drown[] out the facility's own message," and therefore be unduly burdensome  If a commercial disclosure requirement is not a factual and uncontroversial disclosure related to the speaker's goods or services under Zauderer , courts will likely apply a heightened standard of review  Under prevailing Supreme Court precedent, if a provision does not qualify for Zauderer 's reasonableness review, a court may review the challenged regulation under Central Hudson   As discussed above, Central Hudson established the general standard of review for government restrictions on commercial speech  The Supreme Court described "a four-part analysis:" At the outset, we must determine whether the expression is protected by the First Amendment  For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading  Next, we ask whether the asserted governmental interest is substantial  If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest  The Court has described the Central Hudson test as "intermediate" scrutiny  If a disclosure requirement affects commercial speech but does not qualify for Zauderer review, courts have generally held that Central Hudson 's intermediate scrutiny applies  However, courts have sometimes suggested that some higher standard of review, more stringent than Central Hudson 's intermediate scrutiny, should apply to commercial disclosure requirements that do not qualify for review under Zauderer   Some lower court judges have concluded that because such disclosures compel particular speech and are by definition not content-neutral, they should be evaluated under strict scrutiny  In contrast to Central Hudson review, which requires the government to show that a law is "not more extensive than is necessary to serve" a "substantial" interest, strict scrutiny "requires the Government to prove that the restriction furthers a compelling interest and is narrowly tailored to achieve that interest " The Supreme Court has suggested—but not squarely held—that at least some types of commercial disclosure requirements might be subject to some form of scrutiny more strict than Central Hudson   In NIFLA , the Supreme Court considered the constitutionality of state provisions requiring crisis pregnancy centers to make certain disclosures to clients and in their advertising  The Court suggested that the provision requiring licensed facilities to disseminate notices about state-provided services might be subject to strict scrutiny as a content-based regulation of speech, but concluded that it did not need to resolve that question because the notice could not "survive even intermediate scrutiny " Significantly, however, the NIFLA Court never described the licensed notice as involving commercial speech  In the decision below, the Ninth Circuit had held that the notice should not be subject to strict scrutiny because it regulated "professional speech " That court, like other federal courts of appeals, had recognized "speech that occurs between professionals and their clients in the context of their professional relationship" "as a separate category of speech that is subject to different rules " The Ninth Circuit had concluded that speech that was part of the practice of a profession could be regulated by the state, subject only to intermediate scrutiny  The Court rejected this idea, saying that the First Amendment does not encompass a tradition of lower scrutiny "for a category called 'professional speech '" Ultimately, the Court said that it saw no "persuasive reason" to treat "professional speech as a unique category that is exempt from ordinary First Amendment principles " To the extent that "professional speech" could be seen to overlap with commercial speech, this sentence could be read to suggest that commercial speech should also be subject to "ordinary First Amendment principles " This suggestion would seem to conflict with prior cases saying that commercial speech occupies a "subordinate position in the scale of First Amendment values " Although the NIFLA Court implicitly suggested that disclosure requirements for professionals might constitute commercial speech by evaluating the FACT Act's requirements under Zauderer and Central Hudson , it never expressly clarified whether "professional speech" overlaps with commercial speech  Because the FACT Act's requirements applied outside of the advertising context, it may be open to some debate whether these licensed notices involved commercial speech  The unlicensed notice challenged in NIFLA was required to be included in advertising, and advertisements are "classic examples of commercial speech " But the unlicensed notice was also required to be posted on-site, and the state required licensed facilities to post disclosures on-site or to otherwise distribute the notice to clients directly  Further, in a similar context, at least one federal court of appeals concluded that a Baltimore ordinance requiring certain pregnancy centers to make specified disclosures regulated noncommercial speech  That court said the pregnancy centers were not motivated by economic interest or proposing a commercial transaction, but were instead "provid[ing] free information about pregnancy, abortion, and birth control as informed by a religious and political belief " If the licensed disclosures in NIFLA did not regulate commercial speech, then it would be unsurprising that the Court would consider applying strict scrutiny rather than Central Hudson   Others, however, have pointed out that crisis pregnancy centers, even if they do not charge fees, operate "in a marketplace where other providers generally charge fees," and argued that these centers "are engaged in commercial activity by providing physical and mental health services to pregnant women " And more generally, some have pointed out the similarities between "professional" and commercial speech  The fact that the NIFLA Court did not directly address the relationship between professional and commercial speech may suggest that heightened scrutiny may be necessary with respect to some commercial disclosure requirements  Specifically, the Court did not cite the commercial speech doctrine as "a persuasive reason for treating professional speech as a unique category that is exempt from ordinary First Amendment principles " At least one commentator has argued that the Court's failure to mention Central Hudson —"not even to dismiss it as       another inapposite exception to Reed 's general rule [of strict scrutiny]"—may suggest that the Court is seeking to limit Central Hudson 's holding that commercial speech may be more freely regulated than other speech under the First Amendment  Although NIFLA may not have expressly altered the framework used to evaluate commercial disclosure requirements, it may nonetheless signal that the Supreme Court will view them with more skepticism in the future  The majority opinion, authored by Justice Thomas, emphasized that "[t]he dangers associated with content-based regulations of speech are also present in the context of professional speech " Even if "professional speech" is not coterminous with "commercial speech," this statement does seem to suggest that the Court believes content neutrality principles are relevant in the commercial sphere  In dissent, Justice Breyer, viewing the majority opinion as adopting such a view, argued that the majority's approach, "if taken literally, could radically change prior law, perhaps placing much securities law or consumer protection law at constitutional risk " He pointed out that "[v]irtually every disclosure law could be considered 'content based,' for virtually every disclosure law requires individuals 'to speak a particular message '" In response to Justice Breyer, the NIFLA majority stated that it did not "question the legality of health and safety warnings long considered permissible, or purely factual and uncontroversial disclosures about commercial products " This view echoed the Court's prior statement that "[p]urely commercial speech is more susceptible to compelled disclosure requirements " Following the Court's 2010 decision in Reed , in which the Court articulated a more "precise test to determine whether speech regulations are content based," many lower courts had rejected the idea that content-based requirements affecting only commercial speech should be subject to strict scrutiny, even if they otherwise discriminated based on content under Reed   But because NIFLA appeared to suggest that content neutrality is relevant in the commercial sphere, it seems reasonable to think that lower courts may now be more likely to conclude that strict scrutiny could apply to content-based commercial disclosure requirements  This would be consistent with what some commentators have described as the Court's increasingly heightened scrutiny of restrictions on commercial speech  For now, though, Central Hudson generally continues to govern the analysis of government actions affecting lawful, non-misleading commercial speech, including commercial disclosure requirements that do not qualify for Zauderer review  As discussed, Central Hudson requires that the government prove that its interest is "substantial," and that the regulation "directly advances" that interest and is "not more extensive than is necessary to serve that interest " Government regulations are more likely to fail this more rigorous standard than the Zauderer reasonableness standard, often because a court believes there is some less restrictive means available for the government to achieve its goals  Courts will require more "evidence of a measure's effectiveness" under Central Hudson , as compared to Zauderer   However, Central Hudson is more forgiving than strict scrutiny, and courts do uphold government actions infringing on commercial speech under Central Hudson   For example, in Spirit Airlines v  Department of Transportation , the D C  Circuit concluded that a federal regulation governing the way that airlines must display flight prices "satisfie[d]       the Central Hudson test " In the court's view, "[t]he government interest—ensuring the accuracy of commercial information in the marketplace—[was] clearly and directly advanced by a regulation requiring that the total, final price be the most prominent" price displayed  And the regulation was "reasonably tailored to accomplish that end" because the rule "simply regulate[d] the manner of disclosure " Government actions are unlikely to be upheld if a court applies strict scrutiny  Nonetheless, some scholars have argued that many disclosure requirements might survive strict scrutiny, and the Supreme Court has, in rare instances, said that the government may "directly regulate speech to address extraordinary problems, where its regulations are appropriately tailored to resolve those problems without imposing an unnecessarily great restriction on speech " It is possible that a court could hold that the government has a compelling interest in protecting consumers, for example, and that particular disclosures are narrowly tailored to meet that interest  The Supreme Court has long emphasized that the government can regulate commercial activity "deemed harmful to the public " But a court would likely require more proof from the government under strict scrutiny and likely would not simply accept the government's allegations as "self-evident" under such review  Congress has enacted a wide variety of disclosure requirements, many of which arguably compel commercial speech  For example, the Securities and Exchange Act of 1934 sets out disclosure requirements for registering securities  Federal law, among a host of other food labeling requirements, requires "bioengineered food" to bear a label disclosing that the food is bioengineered  Direct-to-consumer advertisements for prescription drugs must contain a series of disclosures, including the drug's name and side effects  Certain appliances must contain labels disclosing information about their energy efficiency  Bills in the 115 th and 116 th Congresses have proposed additional disclosure requirements, including a bill that would require large online platforms to disclose any studies conducted on users for the purposes of promoting engagement, and a bill that would require public companies to disclose climate-related risks  Recent Supreme Court precedent suggests that the Court is more closely reviewing commercial disclosure requirements, perhaps moving away from a more deferential treatment of such provisions  In NIFLA , the Court held that a disclosure requirement was likely unconstitutional under Zauderer because the government had not presented sufficient evidence to justify the measure —even though in other cases, the Court had rejected similar challenges to commercial disclosure requirements, saying that the government did not need to present more evidence because the harm it sought to remedy was "self-evident " Further, the Court has recently suggested that if a law regulating commercial speech discriminates on the basis of content—as all disclosure requirements seemingly do —then this content discrimination might subject the law to heightened scrutiny  If the Court further embraces this view, it could be a marked departure from its opinions holding that commercial speech could be regulated on the basis of its content, so long as the government's justification for the content discrimination were sufficiently related to its legitimate interests in regulating the speech  In concurring and dissenting opinions that have been joined by other Justices, Justice Breyer has argued that insofar as the Court's recent decisions suggest that commercial disclosure requirements should be subject to heightened scrutiny, they are inconsistent with prior case law and are not a proper application of the First Amendment  The Supreme Court said in NIFLA that it was "not question[ing] the legality of health and safety warnings long considered permissible, or purely factual and uncontroversial disclosures about commercial products " And lower courts have frequently upheld commercial disclosure requirements, perhaps suggesting that disclosures of the kind cited by Justice Breyer are not in danger of wholesale invalidation under the First Amendment  However, the majority opinion in NIFLA did not clarify what kind of disclosures it would consider permissible, and its opinion made clear that disclosure requirements should be scrutinized in light of the speakers they cover and the burdens they pose  Moreover, although the NIFLA Court said that it was not questioning these disclosures' "legality," it left open the possibility that these disclosure should nonetheless be subject to heightened scrutiny  This statement may mean only that the Court believes that many commercial disclosure requirements would meet a higher standard of scrutiny  At least one federal appellate court seems to have taken NIFLA as a signal that lower courts should more closely scrutinize commercial disclosure requirements  In American Beverage Association v  City & County of San Francisco , the Ninth Circuit, sitting en banc , relied on NIFLA to reverse a prior decision that had upheld an ordinance requiring "health warnings on advertisements for certain sugar-sweetened beverages " While a panel of judges had previously concluded that the disclosure requirement was constitutional under Zauderer , the full Ninth Circuit, reviewing that decision, said: " NIFLA requires us to reexamine how we approach a First Amendment claim concerning compelled speech " Namely, the court held that, in light of NIFLA , the health warnings were likely unjustified and unduly burdensome under Zauderer , noting that the regulation required the warnings to "occupy at least 20% of those products' labels or advertisements"—but that the record showed that "a smaller warning—half the size—would accomplish [the government's] stated goals " As such, the court held that the warnings violated the First Amendment "by chilling protected speech " Accordingly, when Congress and federal agencies consider adopting new commercial disclosure requirements, or reauthorizing old ones, it may be wise to develop a record with more evidence demonstrating a need for the regulation  Under any level of scrutiny, courts will examine the government's asserted purpose for the legislation, as well as how closely tailored the disclosure requirement is to achieve that purpose  Under Zauderer , particularly in light of NIFLA , courts may ask for evidence to support the government's claim that the regulated speech is misleading or that the government has some other interest in regulating that speech, and will likely scrutinize the disclosure requirement to make sure it is not unduly burdensome  Under intermediate scrutiny or strict scrutiny, a court may also ask whether the government considered alternative policies that would be less restrictive of speech, examining more closely the government's justifications for choosing a disclosure requirement 

ground_truth: The Community Reinvestment Act (CRA; P.L. 95-128, 12 U.S.C. §§2901-2908) addresses how banking institutions meet the credit needs of the areas they serve, particularly in low- and moderate-income (LMI) neighborhoods. The federal banking regulatory agencies—the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC)—currently implement the CRA. The regulators issue CRA credits, or points, where banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities—that occur with a designated assessment area. These credits are then used to issue each bank a performance rating. The CRA requires these ratings be taken into account when banks apply for charters, branches, mergers, and acquisitions among other things. The CRA, which was enacted in 1977, was subsequently revised in 1989 to require public disclosure of bank CRA ratings to establish a four-tiered system of descriptive performance levels (i.e., Outstanding, Satisfactory, Needs to Improve, or Substantial Noncompliance). In 1995, the CRA examination was customized to account for differences in bank sizes and business models. In 2005, the bank size definitions were revised and indexed to the Consumer Price Index. The 2005 amendments also expanded opportunities for banks to earn CRA credit for public welfare investments (such as providing housing, services, or jobs that primarily benefit LMI individuals). Qualifying activities under the CRA have evolved to include consumer and business lending, community investments, and low-cost services that would benefit LMI areas and entities. Congressional interest in the CRA stems from various perceptions of its effectiveness. Some have argued that, by encouraging lending in LMI neighborhoods, the CRA may also encourage the issuance of higher-risk loans to borrowers likely to have repayment problems (under the presumption that low-income is correlated with lower creditworthiness), which can translate into losses for lenders. Others are concerned that the CRA is not generating sufficient incentives to increase credit availability to qualified LMI borrowers, which may impede economic recovery for some, particularly following the 2007-2009 recession. This report informs the congressional debate concerning the CRA's effectiveness in incentivizing bank lending and investment activity to LMI borrowers. After a discussion of the CRA's origins, it presents the CRA's examination process and bank activities that are eligible for consideration of CRA credits. Next, it discusses the difficulty of determining the CRA's influence on bank behavior. For example, the CRA does not specify the quality and quantity of CRA-qualifying activities, meaning that compliance with the CRA does not require adherence to lending quotas or benchmarks. In the absence of benchmarks, determining the extent to which CRA incentives have influenced LMI credit availability relative to other factors is not straightforward. Banks also face a variety of financial incentives—for example, capital requirements, the prevailing interest rate environment, changes in tax laws, and technological innovations—that influence how much (or how little) they lend to LMI borrowers. Because multiple financial profit incentives and CRA incentives tend to exist simultaneously, it is difficult to determine the extent to which CRA incentives have influenced LMI credit availability relative to other factors.

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



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

Report 1: Congress passed the Community Reinvestment Act of 1977 (CRA; P L  95-128 , 12 U S C  §§2901-2908) in response to concerns that federally insured banking institutions were not making sufficient credit available in the local areas in which they were chartered and acquiring deposits  According to some in Con gress, the granting of a public bank charter should translate into a continuing obligation for that bank to serve the credit needs of the public where it was chartered  Consequently, the CRA was enacted to "re-affirm the obligation of federally chartered or insured financial institutions to serve the convenience and needs of their service areas" and "to help meet the credit needs of the localities in which they are chartered, consistent with the prudent operation of the institution " The CRA requires federal banking regulators to conduct examinations to assess whether a bank is meeting local credit needs  The regulators issue CRA credits, or points, where banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit low- and moderate-income (LMI) areas and entities—that occur within assessment areas (where institutions have local deposit-taking operations)  These credits are then used to issue each bank a performance rating from a four-tiered system of descriptive performance levels (Outstanding, Satisfactory, Needs to Improve, or Substantial Noncompliance)  The CRA requires federal banking regulators to take those ratings into account when institutions apply for charters, branches, mergers, and acquisitions, or seek to take other actions that require regulatory approval  Congress became concerned with the geographical mismatch of deposit-taking and lending activities for a variety of reasons  Deposits serve as a primary source of borrowed funds that banks may use to facilitate their lending  Hence, there was concern that banks were using deposits collected from local neighborhoods to fund out-of-state as well as various international lending activities at the expense of addressing the local area's housing, agricultural, and small business credit needs  Another motivation for congressional action was to discourage redlining practices  One type of redlining can be defined as the refusal of a bank to make credit available to all of the neighborhoods in its immediate locality, including LMI neighborhoods where the bank may have collected deposits  A second type of redlining is the practice of denying a creditworthy applicant a loan for housing located in a certain neighborhood even though the applicant may qualify for a similar loan in another neighborhood  This type of redlining pertains to circumstances in which a bank refuses to serve all of the residents in an area, perhaps due to discrimination  The CRA applies to banking institutions with deposits insured by the Federal Deposit Insurance Corporation (FDIC), such as national banks, savings associations, and state-chartered commercial and savings banks  The CRA does not apply to credit unions, insurance companies, securities companies, and other nonbank institutions because of the differences in their financial business models  The Office of the Comptroller of the Currency (OCC), the Federal Reserve System, and the FDIC administer the CRA, which is implemented via Regulation BB  The CRA requires federal banking regulatory agencies to evaluate the extent to which regulated institutions are effectively meeting the credit needs within their designated assessment areas, including LMI neighborhoods, in a manner consistent with the federal prudential regulations for safety and soundness   The CRA's impact on lending activity has been publicly debated  Some observers are concerned that the CRA may induce banks to forgo more profitable lending opportunities in nontargeted neighborhoods by encouraging a disproportionate amount of lending in LMI communities  Furthermore, some argue that the CRA compels banks to make loans to higher-risk borrowers that are more likely to have repayment problems, which may subsequently compromise the financial stability of the banking system  For example, some researchers have attributed the increase in risky lending prior to the 2007-2009 recession to banks attempting to comply with CRA objectives  Others are concerned that enforcement of CRA objectives has not been stringent enough to compel banks to increase financial services in LMI areas  Almost all banks receive Satisfactory or better performance ratings (discussed in more detail below) on their CRA examinations, which some may consider indicative of weak enforcement  This report informs the congressional debate concerning the CRA's effectiveness in incentivizing bank lending and investment activity to LMI customers  It begins with a description of bank CRA examinations, including how a bank delineates its assessment area; the activities that may qualify for points under the three tests (i e , lending, investment, and service) that collectively make up the CRA examination; and how the composite CRA rating is calculated  Next, the report analyzes the difficulty in attributing bank lending decisions to CRA incentives  For example, the CRA does not specify the quality and quantity of CRA-qualifying activities, meaning that CRA compliance does not require adherence to lending quotas or benchmarks  Without explicit benchmarks, linking the composition of banks' loan portfolios to either too strong or too weak CRA enforcement is difficult  Banks are also unlikely to get CRA credit for all of the loans they make to LMI customers  Specifically, higher-risk loans that banking regulators explicitly discourage are unlikely to be eligible for CRA consideration  Furthermore, greater mobility of lending and deposit-taking activity across regional boundaries due to various financial market innovations has complicated the ability to geographically link various financial activities  Hence, many banks' financial activities occurring in a designated assessment area that are eligible for CRA consideration may simply be profitable, meaning they may have occurred without the CRA incentive  Finally, this report summarizes recent policy discussions regarding modernization of the CRA  As noted above, the federal banking regulators conduct regular examinations of banks to assess whether they meet local credit needs in designated assessment areas  The regulators issue CRA credits, or points, when banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities—that occur within assessment areas  Regulation BB provides the criteria that a bank's board of directors must use to determine the assessment area(s) in which its primary regulator will conduct its CRA examination  The assessment area typically has a geographical definition—the location of a bank's main office, branches, and deposit-taking automatic teller machines, as well as surrounding areas where the bank originates and purchases a substantial portion of loans  Assessment areas must generally include at least one metropolitan statistical area (MSA) or at least one contiguous political subdivision, such as a county, city, or town  Regulation BB also requires that assessment areas may not reflect illegal discrimination, arbitrarily exclude LMI geographies, and extend substantially beyond an MSA boundary or a state boundary (unless the assessment area is located in a multistate MSA)  Banking regulators regularly review a bank's assessment area delineations for compliance with Regulation BB requirements as part of the CRA examination  Instead of a more conventionally delineated assessment area, certain banking firms may obtain permission to devise a strategic plan for compliance with Regulation BB requirements  For example, wholesale and limited purpose banks are specialized banks with nontraditional business models  Wholesale banks provide services to larger clients, such as large corporations and other financial institutions; they generally do not provide financial services to retail clients, such as individuals and small businesses  Limited purpose banks offer a narrow product line (e g , concentration in credit card lending) rather than provide a wider range of financial products and services  These banking firms typically apply to their primary regulators to request designation as a wholesale or limited purpose bank and, for CRA examination purposes, are evaluated under strategic plan options that have been tailored for their distinctive capacities, business strategies, and expertise  The option to develop a strategic plan of pre-defined CRA performance goals is available to any bank subject to the CRA  The public is allowed time (e g , 30 days) to provide input on the draft of a bank's strategic plan, after which the bank submits the plan to its primary regulator for approval (within 60 days after the application is received)  Regulation BB does not impose lending quotas or benchmarks  Instead, Regulation BB provides banks with a wide variety of options to serve the needs of their assessment areas  Qualifying CRA activities include mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities  For example, banks may receive CRA credits for such activities as investing in special purpose community development entities (CDEs), which facilitate capital investments in LMI communities (discussed below); providing support (e g , consulting, detailing an employee, processing transactions for free or at a discounted rate, and providing office facilities) to minority- and women-owned financial institutions and low-income credit unions (MWLIs), thereby enhancing their ability to serve LMI customers; serving as a joint lender for a loan originated by MWLIs; facilitating financial literacy education to LMI communities, including any support of efforts of MWLIs and CDEs to provide financial literacy education; opening or maintaining bank branches and other transactions facilities in LMI communities and designated disaster areas; providing low-cost education loans to low-income borrowers; and offering international remittance services in LMI communities  The examples listed above are not comprehensive, but they illustrate several activities banks may engage in to obtain consideration for CRA credits  The banking regulators will consider awarding CRA credits or points to a bank if its qualifying activities occur within an assigned assessment area  The points are then used to compute a bank's overall composite CRA rating  Regulators apply up to three tests, which are known as the lending , investment , and service tests, respectively, to determine whether a bank is meeting local credit need in designated assessment areas  The lending test evaluates the number, amount, and distribution across income and geographic classifications of a bank's mortgage, small business, small farm, and consumer loans  The investment test grades a bank's community development investments in the assessment area  The service test examines a bank's retail service delivery, such as the availability of branches and low-cost checking in the assessment area  The point system for bank performance under the lending, investment, and service tests is illustrated in Table 1   The lending test is generally regarded as the most important of the three tests, awarding banks the most points (CRA credits) in all rating categories  As shown in Table 1 , banks receive fewer credits for making CRA-qualified investments than for providing direct loans to individuals under the lending test  In some instances, an activity may qualify for more than one of the performance tests  Federal banking regulators evaluate financial institutions based upon their capacity, constraints, and business strategies; demographic and economic data; lending, investment, and service opportunities; and benchmark against competitors and peers  Because these factors vary across banks, the CRA examination was customized in 1995 to account for differences in bank sizes and business models  In 2005, the bank size definitions were revised to include small , intermediate small , and large banks  The bank regulators also indexed the asset size thresholds—which are adjusted annually—to inflation using the Consumer Price Index  As of January 1, 2019, a small bank is defined as having less than $1 284 billion in assets as of December 31 of either of the prior two calendar years; an intermediate small bank has at least $321 million as of December 31 of both of the prior two calendar years but less than $1 284 billion as of December 31 of either of the prior two calendar years; and a large bank has $1 284 billion or more in assets  Small banks are typically evaluated under the lending test  Regulators review (1) loan-to-deposit ratios; (2) percentage of loans in an assessment area; (3) lending to borrowers of different incomes and in different amounts; (4) geographical distribution of loans; and (5) actions on complaints about performance  Intermediate small banks are subject to both the lending and investment tests  Large banks are subject to all three tests  As mentioned previously, direct lending to borrowers, taking place in what is referred to as primary lending markets , qualify for CRA credit under the lending test  Investments taking place in secondary lending markets , in which investors purchase loans that have already been originated (such that little or no direct interaction occurs between investors and borrowers), qualify for CRA credit under the investment test  Secondary market investors may assume the default risk associated with a loan if the entire loan is purchased  Alternatively, if a set of loans are pooled together, then numerous secondary investors may purchase financial securities in which the returns are generated by the principal and interest repayments from the underlying loan pool, thereby sharing the lending risk  Direct ownership of loans or purchases of smaller portions (debt securities) of a pool of loans, therefore, are simply alternative methods to facilitate lending  As shown in Table 1 above, a bank may receive CRA consideration under the lending test for making a loan to LMI individuals that is guaranteed by a federal agency, such as the Federal Home Administration (FHA)  If, however, a bank purchases securities backed by pools of FHA-guaranteed mortgage originations, this activity receives credit under the investment test  Thus, the bank receives less CRA credit when the financial risk is shared with other lenders than it would for making a direct loan (and holding all of the lending risk) even though it would still facilitate lending to LMI borrowers  In 2005, the activities that qualify for CRA credit were expanded to encourage banks to make public welfare investments  More specifically, qualifying activities include a public welfare investment (PWI) that promotes the public welfare by providing housing, services, or jobs that primarily benefit LMI individuals; and a community development investment (CDI), economic development investment , or project that meets the PWI requirements  Examples of CDI activities include promoting affordable housing, financing small businesses and farms, and conducting activities that revitalize LMI areas  Banks may engage in certain activities that typically would not be permitted under other banking laws as long as these activities promote the public welfare and do not expose institutions to unlimited liability  For example, banks generally are not allowed to make direct purchases of the preferred or common equity shares of other banking firms; however, banks may purchase equity shares of institutions with a primary mission of community development (discussed in more detail in the Appendix ) up to an allowable CDI limit  The Financial Services Regulatory Relief Act of 2006 ( P L  109-351 ) increased the amount that national banking associations and state banks (that are members of the Federal Reserve System) may invest in a single institution from 10% to 15% of a bank's unimpaired capital and unimpaired surplus  CDIs that benefit a bank's designated assessment area may qualify for CRA credit  For CRA purposes, the definition of a CDI was expanded in 2005 to include "underserved and distressed" rural areas and "designated disaster areas" to aid the regional rebuilding from severe hurricanes, flooding, earthquakes, tornados, and other disasters  The disaster area provision allows banks anywhere in America to receive consideration for CRA credit if they facilitate making credit available to a distressed location or geographic area outside of their own assessment areas  Thus, the 2005 revisions to the PWI and CDI definitions made more banking activities eligible for CRA credits  The banking regulators would consider awarding full CRA credits under the lending test to banks that make CDI loans directly in their assessment areas  Under the investment test, however, the banking regulators may choose to prorate the credits awarded to indirect investments  The Appendix provides examples of CDI activities that would qualify for CRA consideration under the investment test  Any awarded CRA credits could be prorated given that investing banks typically would have less control over when and where the funds are loaned  The CRA was revised in 1989 to require descriptive CRA composite performance ratings that must be disclosed to the public  The composite ratings illustrated in Table 2 are tabulated using the points assigned from the individual tests (shown in Table 1 above)  Grades of Outstanding and Satisfactory are acceptable; Satisfactory ratings in both community development and retail lending are necessary for a composite Satisfactory   Large banks must receive a sufficient amount of points from the investment and service tests to receive a composite Outstanding rating  Regulators include CRA ratings as a factor when lenders request permission to engage in certain activities, such as moving offices or buying another institution  Denying requests, particularly applications for mergers and acquisitions, is a mechanism that may be applied against banking organizations with ratings below Satisfactory   In 2005, the banking regulators also ruled that any evidence of discrimination or credit practices that violate an applicable law, rule, or regulation by any affiliate would adversely affect an agency's evaluation of a bank's CRA performance  Applicants with poor ratings may resubmit their applications after making the necessary improvements  Covered institutions must post a CRA notice in their main offices and make publicly available a record of their composite CRA performance  Given that the CRA is not a federal assistance program and that several regulators implement it separately, no single federal agency is responsible for evaluating its overall effectiveness  In 2000, Congress directed the Federal Reserve to study the CRA's effectiveness  The Federal Reserve's study reported that lending to LMI families had increased since the CRA's enactment but found it was not possible to directly attribute all of that increase to the CRA  For example, advancements in underwriting over the past several decades have enabled lenders to better predict and price borrower default risk, thus making credit available to borrowers that might have been rejected prior to such technological advances  This section examines the difficulty linking bank lending outcomes directly to the CRA, considering questions raised about the subjectivity of the CRA examination itself, whether prudential regulators use CRA to encourage banks to engage in high-risk lending, and whether the increased lending to LMI borrowers since CRA's enactment can be attributed to other profit-incentives that exist apart from the CRA  Questions have been raised as to whether the CRA examination itself is effective at measuring a bank's ability to meet local credit needs  For example, the CRA examinations have an element of subjectivity in terms of measuring both the quality and quantity of CRA compliance  In terms of quality, regulators determine the "innovativeness or flexibility" of qualified loan products; the "innovativeness or complexity" of qualified investments; or the "innovativeness" of ways banks service groups of customers previously not served  The number of points some CRA-qualifying investments receive relative to others is up to the regulator's judgment given that no formal definition of innovativeness has been established (although regulators provide a variety of examples as guidelines for banks to follow)  In terms of quantity, there is no official quota indicating when banks have done enough CRA-qualified activities to receive a particular rating  Without specific definitions of the criteria or quotas, the CRA examination may be considered subjective  Almost all banks pass their CRA examinations  Figure 1 shows the average annual composite scores of banks that received CRA examinations as well as the annual number of bank examinations by size  In general, most banks receive a composite Satisfactory or better rating regardless of the number of banks examined in a year  For all years, approximately 97% or more of banks examined received ratings of Satisfactory or Outstanding   Whether the consistently high ratings reflect the CRA's influence on bank behavior or whether the CRA examination procedures need improvement is difficult to discern  Another issue raised is whether the CRA has resulted in banks making more high-risk loans given that it encourages banks to lend to LMI individuals (perhaps under the presumption that LMI individuals are less creditworthy relative to higher-income individuals)  Since passage of the CRA, however, innovations have allowed lenders to better evaluate the creditworthiness of borrowers (e g , credit scoring, the adoption of automated underwriting), thus enhancing credit availability to both high credit quality and credit-impaired individuals  Credit-impaired borrowers can be charged higher interest rates and fees than those with better credit histories to compensate lenders for taking on greater amounts of credit or default risk  Nontraditional loan products (e g , interest-only, initially low interest rate) allow borrowers to obtain lower regular payments during the early stages of the loan, perhaps under the expectation that their financial circumstances may improve in the later stages as the loan payments adjust to reflect the true costs  The ability to charge higher prices or offer such nontraditional loan products may result in greater higher-risk lending  Because these technological developments in the financial industry occurred after enactment of the CRA, banks' willingness to enter into higher-risk lending markets arguably cannot be attributed solely to the CRA  Regulators arguably are more reluctant to award banks CRA credit for originating higher-risk loans given the scrutiny necessary to determine whether higher loan prices reflect elevated default risk levels or discriminatory or predatory lending practices  Primary bank regulators are concerned with both prudential regulation and consumer protection  It is difficult for regulators to monitor how well borrowers understood the disclosures regarding loan costs and features, or whether any discriminatory or predatory behavior occurred at the time of loan origination  Regulators use fair lending examinations to determine whether loan pricing practices have been applied fairly and consistently across applicants or if some steering to higher-priced loan products occurred  Nevertheless, although it is not impossible for banks to receive CRA credits for making some higher-priced loans, regulators are mindful of practices such as improper consumer disclosure, steering, or discrimination that inflate loan prices  Prudential regulators are also unlikely to encourage lending practices that might result in large concentrations of high-risk loans on bank balance sheets  Hence, certain lending activities—subprime mortgages and payday lending—have been explicitly discouraged by bank regulators, as discussed in more detail below  Although no consensus definition has emerged for subprime lending, this practice may generally be described as lending to borrowers with weak credit at higher costs relative to borrowers of higher credit quality  In September 2006, the banking regulatory agencies issued guidance on subprime lending that was restrictive in tone  The guidance warned banks of the risk posed by nontraditional mortgage loans, including interest-only and payment-option adjustable-rate mortgages  The agencies expressed concern about these loans because of the lack of principal amortization and the potential for negative amortization  Consequently, a study of 2006 Home Mortgage Disclosure Act data reported that banks subject to the CRA and their affiliates originated or purchased only 6% of the reported high-cost loans made to lower-income borrowers within their CRA assessment areas  Banks, therefore, received little or no CRA credit for subprime mortgage lending  Instead, federal regulators offered CRA consideration to banks that helped mitigate the effects of distressed subprime mortgages  On April 17, 2007, federal regulators provided examples of various arrangements that financial firms could provide to LMI borrowers to help them transition into affordable mortgages and avoid foreclosure  The various workout arrangements were eligible for favorable CRA consideration  Banks are unlikely to receive CRA consideration for originating subprime mortgages going forward  The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P L  111-203 ) requires lenders to consider consumers' ability to repay before extending them mortgage credit, and one way for lenders to comply is to originate qualified mortgages (QMs) that satisfy various underwriting and product-feature requirements  For example, QMs may not have any negative amortization features, interest-only payments, or points and fees that exceed specified caps of the total loan amount; in most cases, borrowers' debt-to-income ratios shall not exceed 43%  QM originations will give lenders legal protections if the required income verification and other proper underwriting procedures were followed  Given the legal protections afforded to QMs, some banks might show greater reluctance toward making non-QM loans  With this in mind, the federal banking regulators announced that banks choosing to make only or predominately QM loans should not expect to see an adverse effect on their CRA evaluations; however, the regulators did not indicate that CRA consideration would be given for non-QMs  Arguably, the federal banking regulators appear less inclined to use the CRA to encourage lending that could be subject to greater legal risks  Banks have demonstrated interest in providing financial services such as small dollar cash advances, which are similar to payday loans, in the form of subprime credit cards, overdraft protection services, and direct deposit advances  However, banks are discouraged from engaging in payday and similar forms of lending  Legislation, such as the Credit Card Accountability Responsibility and Disclosure Act of 2009 ( P L  111-24 ), placed restrictions on subprime credit card lending  In addition, federal banking regulators expressed concern when banks began offering deposit advance products due to the similarities to payday loans  Specifically, on April 25, 2013, the OCC, FDIC, and Federal Reserve expressed concerns that the high costs and repeated extensions of credit could add to borrower default risks and issued final supervisory guidance regarding the delivery of these products  Many banks subsequently discontinued offering deposit advances  In general, these legislative and regulatory efforts explicitly discourage banks from offering high-cost consumer financial products and thus such products are unlikely to receive CRA consideration  When various financial products are deemed unsound by bank regulators and not offered by banks, a possible consequence may be that some customers migrate to nonbank institutions willing to provide these higher-cost products  Accordingly, the effectiveness of the CRA diminishes if more individuals choose to seek financial products from nonbank institutions  In general, it can be difficult to determine the extent to which banks' financial decisions are motivated by CRA incentives, profit incentives, or both  Compliance with CRA does not require banks to make unprofitable, high-risk loans that would threaten the financial health of the bank  Instead, CRA loans have profit potential; and bank regulators require all loans, including CRA loans, to be prudently underwritten  As evidenced below, it may be difficult to determine whether banks have made particular financial decisions in response to profit or CRA incentives in cases where those incentives exist simultaneously  For example, banks increased their holdings of municipal bonds in 2009  Although banks may receive CRA consideration under the investment test for purchasing state and local municipal bonds that fund public and community development projects in their designated assessment areas, banks may choose this investment for reasons unrelated to CRA  During recessions, for example, banks may reduce direct (or primary market) lending activities and increase their holdings of securities in the wake of declining demand for and supply of direct loan originations that occur during economic slowdowns and early recovery periods  In addition, a provision of the American Recovery and Reinvestment Act of 2009 ( P L  111-5 ) provided banks with a favorable tax incentive to invest in municipal bonds in the wake of the 2007-2009 recession  Hence, determining whether banks increased their municipal holdings because of a turn to securities markets for higher yields following a recession, a favorable tax incentive, or the CRA incentive is challenging  Similarly, banks increased their investments in Small Business Investment Corporations (SBICs, defined in the Appendix ) in 2010  Investments in SBICs allow banks to provide subordinate financing (rather than senior debt) to businesses  Senior lenders have first claims to the business's assets in case of failure; however, subordinate financiers provide funds in the form of mezzanine capital or equity, requiring a higher return because they are repaid after senior lenders  Banks generally are not allowed to act as subordinate financiers because they are not allowed to acquire ownership interests in private equity funds, unless such investments promote public welfare  Hence, attributing community development financing activities, such as SBIC investments, to CRA incentives may arguably be easier (relative to other financing activities) because the ability to engage in subordinate financing activities typically represents a CRA exemption from ordinary permissible banking activities  Following the 2007-2009 recession, however, U S  interest rates dropped to historically low levels for an abnormally long period of time  Because low-yielding interest rate environments squeeze profits, banks were likely to search for higher-yielding and larger-sized lending opportunities, such as investments in SBICs  Hence, it remains difficult to determine whether a particular bank's decision to increase SBIC financing activities was driven by normal profit or CRA-related incentives  Between June 2016 and June 2017, more than 1700 U S  bank branches were closed  Many branch closings occurred primarily in rural and low-income tract areas, raising concerns that banks would be able to circumvent their CRA obligation to lend and be evaluated in these areas  A traditional bank business model, however, relies primarily on having access to core deposits , a stable source of funds used to subsequently originate loans  Banks value geographic locations with greater potential to attract high core deposit volumes, which is also consistent with the CRA's requirement that assessment areas include at least one MSA or contiguous political subdivision (as previously discussed)  Furthermore, using FDIC and U S  Census Bureau data, the Federal Reserve noted that the number of branches per capita in 2017 was higher than two decades ago  Hence, determining whether branch closures reflect a bank's intentions to circumvent CRA compliance or to facilitate its ability to attract core deposits is challenging  On April 3, 2018, the U S  Department of Treasury (Treasury) released recommendations to modernize CRA in a memorandum to the federal banking regulators (OCC, FCIC, and the Fed)  Treasury highlighted four of its recommendations, summarized below  When the CRA was enacted in 1977, banks received deposits and made loans primarily through geographical branches  Assessment areas defined geographically arguably may not fully reflect the community served by a bank because of technology developments, such as the internet and mobile phone banking, prompting Treasury to call for revisiting the approach for determining banks' assessment areas  In 2016, the banking regulators issued Interagency Questions and Answers (Q&As) to provide banks guidance pertaining to CRA-eligible activities; however, Treasury noted that each regulator provides its examiners with additional guidance  Also, the Interagency Q&As illustrate past CRA-qualifying activities, but Treasury noted that no formal process currently exists to help determine whether potential (complex, innovative, or innovative) activities would qualify for CRA credit  Treasury recommends establishing clearer standards for CRA-qualifying activities and flexibility (expanding the types of loans, investments, and services that qualify for CRA credit), which may encourage banks to venture beyond activities that typically receive CRA credit  Treasury reports that each bank regulator follows a different examination schedule; the examinations are lengthy; and delays associated with the release of performance evaluations may limit the time banks can react to recommendations before their next CRA examination  Treasury recommends increasing the timeliness of the CRA examination process  Treasury recommends incorporating performance incentives that might result in more efficient lending activities  For example, CRA-qualifying loans may receive credit in the year of origination, but equity investments may receive credit each year that the investment is held  Treasury recommends consistent treatment of loans and investments, which may encourage banks to make more long-term loans (rather than sequences of short-term loans for the sake of being awarded CRA credits at each CRA examination)  On August, 28, 2018, the OCC released an Advance Notice of Proposed Rulemaking (ANPR) to seek comments on ways to modernize the CRA framework  The ANPR solicited comments on the issues raised by Treasury among other things  The OCC's ANPR does not propose specific changes, but its content and the questions posed suggest that the OCC is exploring the possibility of adopting a quantitative metric-based approach to CRA performance evaluation, changing how assessment areas are defined, expanding CRA-qualifying activities, and reducing the complexity, ambiguity, and burden of the regulations on the bank industry  When the comment period closed on November 19, 2018, the OCC had received 1584 comments  The Federal Reserve and the FDIC did not join the OCC in releasing the ANPR  The Federal Reserve System, however, did host research symposiums around the country to gather comments pertaining to CRA reform  As reported by the Federal Reserve, some banking industry comments suggested, among other things, the need for consistency of the CRA examinations to facilitate CRA compliance  Yet some tailoring may still be necessary with respect to determining assessment areas that better reflect each bank's business models, particularly for models that use technology to deliver products and services  The regulators also heard from community and consumer groups  While expressing the need to retain focus on the historical context of the CRA, these groups highlighted the need to address issues pertaining to banking deserts in underserved communities  Community development investments (CDIs) that meet public welfare investment (PWI) requirements are those that promote the public welfare, primarily resulting in economic benefits for low- and moderate-income (LMI) individuals  This appendix provides examples of CDI activities that would qualify for consideration under the CRA investment test  In many cases, covered banks are more likely to take advantage of these optional vehicles to obtain CRA credits if they perceive the underlying investment opportunities to have profit potential  Loan Participations Banks and credit unions often use participation (syndicated) loans to jointly provide credit  When a financial firm (e g , bank, credit union) originates a loan for a customer, it may decide to structure loan participation arrangements with other institutions  The loan originator often retains a larger portion of the loan and sells smaller portions to other financial institutions willing to participate  Suppose a financial firm originates a business or mortgage loan in a LMI neighborhood  A bank may receive CRA investment credit consideration by purchasing a participation, thus becoming a joint lender to the LMI borrower  An advantage of loan participations is that the default risk is divided and shared among the participating banks (as opposed to one financial firm retaining all of the risk)  CRA consideration is possible if the activity occurs within the designated assessment area  For all participating banks to receive credit, some overlap in their designated assessment areas must exist  An exception is made for participations made to benefit designated disaster areas, in which all participating banks would receive CRA consideration regardless of location  State and Local Government Bonds State and local governments issue municipal bonds, and the proceeds are used to fund public projects, community development activities, and other qualifying activities  The interest that nonbank municipal bondholders receive is exempt from federal income taxes to encourage investment in hospitals, schools, infrastructure, and community development projects that require state and local funding  Legislative actions during the 1980s eliminated the tax-exempt status of interest earned from holdings of municipal bonds for banks  Although banks no longer have a tax incentive to purchase municipal bonds, they still consider the profitability of holding these loans, as they do with all lending opportunities  Furthermore, banks receive CRA investment consideration when purchasing state and local municipal bonds that fund public and community development projects in their designated assessment areas  CRA-Targeted Secondary Market Instruments Secondary market financial products have been developed to facilitate the ability of banks to participate in lending activities eligible for CRA consideration, such as purchasing mortgage-backed securities (MBSs) or shares of real estate investment trusts (REITs)  A MBS is a pool of mortgage loans secured by residential properties; a multifamily MBS is a pool of mortgage loans secured by multifamily properties, consisting of structures designed for five or more residential units, such as apartment buildings, hospitals, nursing homes, and manufactured homes  CRA-MBSs are MBSs consisting of loans that originated in specific geographic assessment areas, thereby allowing bank purchases into these pools to be eligible for CRA consideration under the investment test  Similarly, REITs may also pool mortgages, mortgage MBSs, and real estate investments (e g , real property, apartments, office buildings, shopping malls, hotels)  Investors purchase shares in REIT pools and defer the taxes  Banks may only invest in mortgage REITs and MBS REITs  Similar to the CRA-MBSs, the REITs must consist of mortgages and MBSs that would be eligible for CRA consideration  The Community Development Trust REIT is an example of a REIT that serves as a CRA-qualified investment for banks  Community Development Financial Institutions and Equity Equivalent Investments The Community Development Financial Institutions (CDFI) Fund was created by the Riegle Community Development Regulatory Improvement Act of 1994 (the Riegle Act; P L  103-325 )  The CDFI Fund was established to promote economic development for distressed urban and rural communities  The CDFI Fund, currently located within the U S  Department of the Treasury, is authorized to certify banks, credit unions, nonprofit loan funds, and (for-profit and nonprofit) venture capital funds as designated CDFIs  In other words, a bank may satisfy the requirements to become a CDFI, but not all CDFIs are banks  The primary focus of institutions with CDFI certification is to serve the financial needs of economically distressed people and places  The designation also makes these institutions eligible to receive financial awards and other assistance from the CDFI Fund  In contrast to non-CDFI banks, some CDFI banks have greater difficulty borrowing funds and then transforming them into loans for riskier, economically distressed consumers  The lack of loan level data for most CDFI banks causes creditors to hesitate in making low-cost, short-term loans to these institutions  Specifically, the lack of information on loan defaults and prepayment rates on CDFI banking assets is likely to result in limited ability to sell these loan originations to secondary loan markets  Consequently, the retention of higher-risk loans, combined with limited access to low-cost, short-term funding, makes CDFI banks more vulnerable to liquidity shortages  Hence, CDFIs rely primarily on funding their loans (assets) with net assets , which are proceeds analogous to the equity of a traditional bank or net worth of a credit union  CDFI net assets are often acquired in the form of awards or grants from the CDFI Fund or for-profit banks  Funding assets with net assets is less expensive for CDFIs than funding with longer-term borrowings  Banks may obtain CRA investment credit consideration by making investments to CDFIs, which provides CDFIs with net assets (equity)  Under PWI authority, banks are allowed to make equity investments in specialized financial institutions, such as CDFIs, as long as they are considered by their safety and soundness regulator to be at least adequately capitalized   Furthermore, the final Basel III notification of proposed regulation (NPR) allows for preferential capital treatment for equity investments made under PWI authority, meaning equity investments to designated CDFIs may receive more favorable capital treatment  Consequently, banks often provide funds to CDFIs through equity equivalent investments (EQ2s), which are debt instruments issued by CDFIs with a continuous rolling (indeterminate) maturity  EQ2s, from a bank's perspective, are analogous to holding convertible preferred stock with a regularly scheduled repayment  Hence, banks may view EQ2s as a potentially profitable opportunity to invest in other specialized financial institutions and receive CRA consideration, particularly when the funds are subsequently used by CDFIs to originate loans in the banks' assessment areas  Small Business Investment Companies The Small Business Administration (SBA) was established in 1953 by the Small Business Act of 1953 (P L  83-163) to support small businesses' access to capital in a variety of ways  Although issuing loan guarantees for small businesses is a significant component of its operations, the SBA also has the authority to facilitate the equity financing of small business ventures through its Small Business Investment Company (SBIC) program, which was established by the Small Business Investment Act of 1958 (P L  85-699)  SBICs that are licensed and regulated by the SBA may provide debt and equity financing and, although not a program requirement, educational (management consulting) resources for businesses that meet certain SBA size requirements  Banks may act as limited partners if they choose to provide funds to SBICs, which act as general partners  Banks may establish their own SBICs, jointly establish SBICs (with other banks), or provide funds to existing SBICs  SBICs subsequently use bank funding to invest in the long-term debt and equity securities of small, independent (SBA-eligible) businesses, and banks may receive CRA investment consideration if the activities benefit their assessment areas  Community banks invest in SBICs because of the profit potential as well as the opportunity to establish long-term relationships with business clients during their infancy stages  Banks that are considered by their regulators to be adequately capitalized are allowed to invest in these specialized financial institutions under PWI authority, but the investments still receive risk-based capital treatment  SBIC assets, similar to CDFIs, are illiquid given the difficulty to obtain credit ratings for SBIC investments; thus, they cannot be sold in secondary markets  Because banks risk losing the principal of their equity investments, they are required to perform the proper due diligence associated with prudent underwriting  Tax Credits The low-income housing tax credit (LIHTC) program was created by the Tax Reform Act of 1986 ( P L  99-514 ) to encourage the development and rehabilitation of affordable rental housing  Generally speaking, government (federal or state) issued tax credits may be bought and, in many cases, sold like any other financial asset (e g , stocks and bonds)  Owners of tax credits may reduce their tax liabilities either by the amount of the credits or by using the formulas specified on those credits, assuming the owners have participated in the specified activities that the government wants to encourage  For LIHTCs, banks may use a formula to reduce their federal tax liabilities when they provide either credit or equity contributions (grants) for the construction and rehabilitation of affordable housing  If a bank also owns a LIHTC, then a percentage of the equity grant may be tax deductible if the CDFI uses the funds from the grant to finance affordable rental housing  Furthermore, banks may receive consideration for CRA-qualified investment credits  After a domestic corporation or partnership receives designation as a Community Development Entity (CDE) from the CFDI Fund, it may apply for New Markets Tax Credits (NMTCs)  Encouraging capital investments in LMI communities is the primary mission of CDEs, and CDFIs and SBICs automatically qualify as CDEs  Only CDEs are eligible to compete for NMTCs, which are allocated by the CDFI Fund via a competitive process  Once awarded an allocation of NMTCs, the CDE must obtain equity investments in exchange for the credits  Then, the equity proceeds raised must either be used to provide loans or technical assistance or deployed in eligible community investment activities  Only for-profit CDEs, however, may provide NMTCs to their investors in exchange for equity investments  Investors making for-profit CDE equity investments can use the NMTCs to reduce their tax liabilities by a certain amount over a period of years  As previously discussed, a bank may receive CRA credit for making equity investments in nonprofit CDEs and for-profit subsidiaries, particularly if the investment occurs within the bank's assessment area  Furthermore, banks may be able to reduce their tax liabilities if they can obtain NMTCs from the CDEs in which their investments were made 


Report 2:  Even in the 32 states where the state Medicaid agencies reported reviewing information about critical incidents, 20 states were unable to provide the actual number of critical incidents that occurred in assisted living facilities  State Medicaid agencies’ definitions of critical incidents also varied  As illustrated in Figure 4, all 48 states cited physical assault, emotional abuse, and sexual assault or abuse as a critical incident in their largest programs providing assisted living services in 2014  However, for other types of incidents, several states did not identify the incident as critical, including discharge and eviction from the facility (not a critical incident in 24 states), medication errors (not a critical incident in 7 states), and unauthorized use of seclusion, (not a critical incident in 6 states)  For other serious incidents, a relatively small number of states did not identify the incident as critical, such as unexplained death (not a critical incident in 3 states) and missing beneficiaries (not a critical incident in 2 states)  See appendix IV for a full list of the beneficiary-related incidents and the number of states that identify each as critical  Although half of the 48 states that cover assisted living services did not consider discharges or evictions to be critical incidents, according to state responses to our survey, 42 states offered certain protections related to involuntary discharge of Medicaid residents who live in assisted living facilities  The majority of protections consisted of a lease agreement requirement that applied to other housing contracts in the state, such as providing residents with eviction notices  Other protections included an appeals process (10 states) and a requirement for the facility to find an alternative location for the resident (10 states)  State Medicaid agencies also varied in whether they made information on critical incidents and other key information readily available to the public  (See table 5 ) Beneficiaries seeking care in an assisted living facility may want to know the number of critical incidents related to a particular facility  Through our survey we found that states differed in the availability of information related to health and welfare that was available to the public  For example, 34 of the 48 states reported that they made critical incident information available to the public by phone, website, or in person, and the remaining 14 states did not have such information available at all  Although all 48 states had information in some form on which assisted facilities accepted Medicaid beneficiaries, 8 states could not provide this information by phone and 22 states could not provide the information in person  In recent years, CMS has taken steps to improve oversight of beneficiary health and welfare in HCBS programs by adding new HCBS waiver application requirements for state monitoring of beneficiary health and welfare  CMS requires state waiver applications to include specific requirements that implement various statutory and regulatory provisions, including a provision that states assure that they will safeguard the health and welfare of Medicaid beneficiaries  In March 2014, CMS added unexplained death to the events that states must be able to identify and address on an ongoing basis, as part of their efforts to prevent instances of abuse, neglect, and exploitation, and added four new requirements for states to protect beneficiary health and welfare  (See table 6 ) In its guidance implementing the 2014 requirements, CMS noted that state associations and state representatives’ work groups had agreed that “health and welfare is one of the most important assurances to track, and requires more extensive tracking to benefit the individuals receiving services, for instance by using data to prevent future incidents ” As a condition for approval of their HCBS waiver applications for each of the requirements, states must identify and agree with CMS on the type of information they will collect to provide as evidence that they will meet the requirements  However, according to CMS officials, each state Medicaid agency has wide discretion over the information it will collect and report to demonstrate that it is meeting the health and welfare requirements and protecting beneficiaries  Although CMS added the additional requirements in 2014 for safeguarding beneficiary health and welfare, the agency generally did not change requirements for how it oversees state monitoring efforts once HCBS waivers are approved  We found a number of limitations in CMS’s oversight of approved HCBS waivers that undermine the agency’s ability to effectively monitor state oversight of HCBS waivers  These limitations include: unclear guidance on what states should identify and report annually related to any identified program deficiencies; lack of requirements on states to regularly provide CMS information on critical incidents; and CMS’s inconsistent enforcement of the requirement that states submit annual reports  Unclear guidance on what states should identify and report annually related to any identified program deficiencies  Federal law requires states to provide CMS with information annually on an HCBS waiver’s impact on (1) the type and amount, and cost of services provided and (2) the health and welfare of Medicaid beneficiaries receiving waiver services  CMS reporting requirements give states latitude to determine what to report as health and welfare deficiencies found through state monitoring of their HCBS programs  With respect to health and welfare, CMS’s State Medicaid Manual directs states when preparing their annual reports to “check the appropriate boxes regarding the impact of the waiver on the health and welfare” of beneficiaries and to describe relevant information  States are required to provide a brief description of the state process for monitoring beneficiary safeguards, use check boxes to indicate that beneficiary health and welfare safeguards have been met, and identify whether deficiencies were detected during the monitoring process  If states determine that deficiencies were identified through monitoring, states are required to “provide a summary of the significant areas where deficiencies were detected” and an explanation of the actions taken to address deficiencies and ensure the deficiencies do not recur  CMS’s written instructions for completing the HCBS annual report do not provide further guidance regarding reporting of deficiencies  For example, the reporting instructions do not describe or identify 1) what states are supposed to report as deficiencies, 2) how they are to identify which deficiencies are most significant, and 3) the extent to which states need to explain the steps taken to ensure that deficiencies do not recur  The lack of clarity is inconsistent with federal internal control standards, in particular, the need for federal agencies to have processes that identify information needed to achieve objectives and address risk  Without clear instructions as to what states must report, states’ annual reports may not identify deficiencies with states’ HCBS waiver programs that may affect the health and welfare of beneficiaries  States may determine that issues or problems they identified through monitoring do not represent reportable deficiencies and therefore may not report those deficiencies to CMS, increasing the risk that problems are not elevated to CMS’s attention  In the case of one of the selected states we reviewed, no problems were included on the annual reports submitted to CMS between 2011 and 2015  However, when CMS completed its review in the fourth year of the state’s waiver— for purpose of renewing the waiver—it determined the state was not assuring beneficiary health and welfare  CMS found that the information the state submitted for purpose of renewal suggested a “pervasive failure” by the state to assure the health and welfare of beneficiaries receiving services, including assisted living services  In particular, CMS noted the state provided insufficient information regarding the number of unexpected or suspicious beneficiary deaths  CMS concluded that the state failed to demonstrate that it has effective systems and processes for ensuring the health and welfare of beneficiaries  Lack of requirements on states to annually provide CMS information on critical incidents  Despite the importance of state critical incident management and reporting systems to protecting the health and welfare of beneficiaries, CMS lacks written requirements that states provide information needed for the agency oversight of state monitoring of critical incidents  According to CMS, a critical element of effective state oversight is the operation of data systems that support the identification of trends and patterns in the occurrence of critical incidents to identify needed improvements  Such a system is also consistent with federal internal controls standards which specify, in particular, the need for federal agencies to have processes that identify information needed to achieve objectives and address risk  CMS requires states to operate a critical incident reporting system  On their waiver applications states must check a box indicating they operate a system and also describe their system—including who must report and when, and what must be reported  Despite this requirement for states to have critical incident reporting systems, CMS does not require states to report to CMS any data from these systems on critical incidents as part of their required annual reports  Specifically, states are not required to include, in their annual reports, the number of critical incidents reported or substantiated that involve Medicaid beneficiaries  As a result, CMS does not have a method to confirm what states describe about critical incident management systems, which is a required component of states’ waiver applications or to assess the capabilities of states’ systems  For example, CMS cannot confirm whether the state systems can report incidents by location or type of residential provider, such as assisted living facilities; the type and severity of critical incidents that occurred; and the number of incidents that involved Medicaid beneficiaries  Without annual critical incident reporting, CMS may be at risk of (1) not having adequate evidence that states are meeting CMS requirements to have an effective critical incident management and reporting system and of (2) being unaware of problems with states’ abilities to identify, track, and address critical incidents involving Medicaid beneficiaries  Our prior work has shown that the lack of explicit reporting requirements on critical incidents not only impacts HCBS waiver programs but also impacts other types of Medicaid long-term services programs as well  Specifically, In a November 2016 report, we found that CMS requirements for states to report on their critical incident monitoring systems for the HCBS waiver program were more stringent than those for other types of HCBS programs, potentially leaving those other programs at even greater risk  We recommended that CMS take steps to harmonize requirements across different types of HCBS programs  HHS concurred with the recommendation stating it would seek input from states, stakeholders, and the public regarding harmonizing requirements across programs  In an August 2017 report we found similar issues in critical incident reporting requirements for other types of long term services programs, particularly those used to provide HCBS and other long term services under managed care  We found that CMS was not always requiring states that contracted with managed care organizations to provide long term services and supports to report to CMS sufficient information on critical incidents and other key areas needed to monitor beneficiary access and quality  We recommended that CMS take steps to identify and obtain key information needed to better oversee states’ efforts to monitor beneficiary access to quality services in their managed long-term services and supports programs  HHS concurred with this recommendation and stated that the agency would take this recommendation into account as part of an ongoing review of its 2016 Medicaid managed care rule  We continue to believe that the implementation of our prior recommendations is needed to help improve CMS oversight of states monitoring of beneficiary safety  CMS’s inconsistent enforcement of the requirement that states submit annual reports  States must prepare and submit an annual report for each HCBS waiver as a condition of waiver approval  According to CMS guidance, the agency’s review of the annual report is part of the ongoing oversight of HCBS waiver programs and not submitting an annual report jeopardizes the states renewal of HCBS waiver programs  However, some states have not been timely in submitting the required annual reports for their HCBS waivers  A review of 2013 HCBS annual reports by a CMS contractor, published in 2016, found that annual reports were missing for 29 HCBS waivers and multiple years’ of annual reports were missing for 8 waivers  In 2014, CMS adopted new strategies to ensure compliance with HCBS waiver requirements, including the requirement that states submit annual reports on a timely basis  These strategies include withholding federal funding, placing a moratorium on enrollment in the waiver, or other actions the agency determines necessary  CMS officials reported that the agency had not used these new strategies with states that were delinquent in submitting their annual reports  Officials said they were in the process of reviewing how to implement these new strategies in the case of one state; however, as of August 2017 officials had not finalized a decision  CMS’s ability to provide effective oversight of state programs and protect beneficiary health and welfare is undermined by the lack of enforcement and receipt of required annual waiver reports  Effective state and federal oversight is necessary to ensure that the health and welfare of Medicaid beneficiaries receiving assisted living services are protected, especially given the particular vulnerability of many of these beneficiaries to abuse, neglect, or exploitation  CMS has taken steps to strengthen beneficiary health and welfare protections in states’ HCBS waiver programs, the most common type of program that covers assisted living services and one that serves the most vulnerable beneficiaries  In particular, CMS now has multiple requirements for states to safeguard beneficiaries’ health and welfare, including requirements to operate an effective critical incident management and reporting system to identify, investigate, and address incidents of beneficiary abuse, neglect, exploitation, and unexplained death  However, CMS’s ability to effectively monitor how well states are assuring beneficiary health and welfare is limited by gaps in state reporting to CMS  CMS has not provided clear guidance to states on what information to include in annual reports on deficiencies they identify  As a result, CMS lacks assurance that it is receiving consistent, complete, and relevant information on deficiencies that is needed to oversee beneficiary health and welfare  Lacking clear guidance on the reporting of deficiencies may result in a delayed recognition of problems that may affect beneficiary health and welfare  Further, for years, states have been required to check a box attesting that they operate a critical incident management system, but have not always been required to report information on incidents of potential or actual harm to beneficiaries  Given the increasing prevalence of assisted living facilities as a provider of services to Medicaid beneficiaries, it is unclear why more than half of states responding to our survey could not provide us information on the number of critical incidents that occurred in these facilities in their states  Reporting data from their critical incident systems, such as the number of incidents, the type and severity of the incidents, or the location or type of facility in which the incident occurred would provide evidence that an effective system is in place, provide information on the extent beneficiaries are subject to actual or potential harm, and allow for tracking trends over time  Finally, CMS has not ensured that all states submit annual reports on their HCBS waiver programs as required  Without improvements to state reporting, CMS cannot ensure states are meeting their commitments to protect the health and welfare of Medicaid beneficiaries receiving assisted living services, potentially jeopardizing their care  We are making the following three recommendations to CMS: The Administrator of CMS should provide guidance and clarify requirements regarding the monitoring and reporting of deficiencies that states using HCBS waivers are required to report on their annual reports  (Recommendation 1) The Administrator of CMS should establish standard Medicaid reporting requirements for all states to annually report key information on critical incidents, considering, at a minimum, the type of critical incidents involving Medicaid beneficiaries, and the type of residential facilities, including assisted living facilities, where critical incidents occurred  (Recommendation 2) The Administrator of CMS should ensure that all states submit annual reports for HCBS waivers on time as required  (Recommendation 3) We provided a draft of this report to HHS for review and comment  HHS provided written comments, which are reproduced in Appendix V  The department also provided technical comments, which we incorporated as appropriate  In its written comments, the department concurred with two of our three recommendations, specifically, that CMS will clarify requirements for state reporting of program deficiencies and ensure that all states submit required annual reports on time  HHS did not explicitly agree or disagree with our third recommendation to require all states to report information on critical incidents to CMS annually  The department noted it has established a workgroup to learn more about states’ health and welfare systems and that it will use the results of this workgroup to determine which additional reporting requirements would be beneficial  The workgroup’s review will continue through calendar year 2018  In technical comments, HHS indicated that after the workgroup’s review is complete it will consider annual reporting of critical incidents  We believe establishing the workgroup is a positive first step towards improving oversight and state reporting and encourage HHS to require annual reporting on critical incidents when developing additional reporting requirements  As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time, we will send copies to the Secretary of Health and Human Services, the Administrator of CMS, the Administrator of the Administration for Community Living, appropriate congressional committees, and other interested parties  In addition, the report will be available at no charge on the GAO website at http://www gao gov  If you or your staff members have any questions about this report, please contact me at (202) 512-7114 or at iritanik@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff that made key contributions to this report are listed in appendix VI  Our survey of state Medicaid agencies regarding coverage, spending, enrollment, and oversight of assisted living services in 2014, obtained information on challenges for Medicaid beneficiaries to access assisted living services in their states  States provided information related to factors that create challenges for Medicaid beneficiaries’ ability to access and receive assisted living services and the extent states had policies to help beneficiaries with the cost of room and board  A number of states in our survey cited common factors as creating the greatest challenges to a beneficiary’s ability to access assisted living services, including the number of assisted living facilities willing to accept Medicaid beneficiaries (13 states or 27 percent of the 48 states) program enrollment caps (9 states or 19 percent of the 48 states) beneficiaries’ inability to pay for assisted living facility room and board (9 states or 19 percent of the 48 states), which Medicaid typically does not cover low rates the state Medicaid program paid assisted living facilities (8 states or 17 percent of the 48 states)  A number of states reported that they had policies to assist Medicaid beneficiaries with the costs of room and board charged by assisted living facilities, which Medicaid does not typically cover  Two common policies, cited by at least half of the states, were aimed at limiting how much assisted living facilities could charge Medicaid beneficiaries for room and board  For example, 30 of 48 states, limited the amount facilities could charge for room and board to the amount of income certain beneficiaries receive as Supplemental Security Income  The other commonly cited policies focused on providing financial assistance to the beneficiaries to defray the room and board costs  (See table 9 ) In addition to the contact named above, Tim Bushfield and Christine Brudevold (Assistant Directors), Jennie Apter, Shirin Hormozi, Anne Hopewell, Kelsey Kreider, Perry Parsons, Vikki Porter, and Jennifer Whitworth made key contributions to this report 

ground_truth: The number of individuals receiving long term care services from Medicaid in community residential settings is expected to grow. These settings, which include assisted living facilities, provide a range of services that allow aged and disabled beneficiaries, who might otherwise require nursing home care, to remain in the community. State Medicaid programs and CMS, the federal agency responsible for overseeing the state programs, share responsibility for ensuring that beneficiaries' health and welfare is protected. GAO was asked to examine state and federal oversight of assisted living services in Medicaid. This report (1) describes state spending on and coverage of these services, (2) describes how state Medicaid agencies oversee the health and welfare of beneficiaries in these settings, and (3) examines the extent that CMS oversees state Medicaid agency monitoring of assisted living services. GAO surveyed all state Medicaid agencies and interviewed officials in a nongeneralizeable sample of three states with varied oversight processes for their assisted living programs. GAO reviewed regulations and guidance, and interviewed CMS officials. State Medicaid agencies in 48 states that covered assisted living services reported spending more than $10 billion (federal and state) on assisted living services in 2014. These 48 states reported covering these services for more than 330,000 beneficiaries through more than 130 different programs. Most programs were operated under Medicaid waivers that allow states to target certain populations, limit enrollment, or restrict services to certain geographic areas. With respect to oversight of their largest assisted living programs, state Medicaid agencies reported varied approaches to overseeing beneficiary health and welfare, particularly in how they monitored critical incidents involving beneficiaries receiving assisted living services. State Medicaid agencies are required to protect beneficiary health and welfare and operate systems to monitor for critical incidents—cases of potential or actual harm to beneficiaries such as abuse, neglect, or exploitation. Twenty-six state Medicaid agencies could not report to GAO the number of critical incidents that occurred in assisted living facilities, citing reasons including the inability to track incidents by provider type (9 states), lack of a system to collect critical incidents (9 states), and lack of a system that could identify Medicaid beneficiaries (5 states). State Medicaid agencies varied in what types of critical incidents they monitored. All states identified physical, emotional, or sexual abuse as a critical incident. A number of states did not identify other incidents that may indicate potential harm or neglect such as medication errors (7 states) and unexplained death (3 states). State Medicaid agencies varied in whether they made information on critical incidents and other key information available to the public. Thirty-four states made critical incident information available to the public by phone, website, or in person, while another 14 states did not have such information available at all. Oversight of state monitoring of assisted living services by the Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS), is limited by gaps in state reporting. States are required to annually report to CMS information on deficiencies affecting beneficiary health and welfare for the most common program used to provide assisted living services. However, states have latitude in what they consider a deficiency. States also must describe their systems for monitoring critical incidents, but CMS does not require states to annually report data from their systems. Under federal internal control standards, agencies should have processes to identify information needed to achieve objectives and address risk. Without clear guidance on reportable deficiencies and no requirement to report critical incidents, CMS may be unaware of problems. For example, CMS found, after an in-depth review in one selected state seeking to renew its program, that the state lacked an effective system for assuring beneficiary health and welfare, including reporting insufficient information on the number of unexpected or suspicious beneficiary deaths. The state had not reported any deficiencies in annual reports submitted to CMS in 5 prior years. GAO recommendations to CMS include clarifying state requirements for reporting program deficiencies and requiring annual reporting of critical incidents. HHS concurred with GAO's recommendations to clarify deficiency reporting and stated that it would consider annual reporting requirements for critical incidents after completing an ongoing review.