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



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

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


Report 2: The Rehabilitation Act of 1973 (Rehabilitation Act), as amended by WIOA, authorizes a number of grant programs to support employment and independent living for persons with disabilities, including the State Vocational Rehabilitation Services program  This program is the primary federal government effort to help individuals with disabilities prepare for and obtain employment  An individual who is deemed eligible works with state VR agency staff to prepare an individualized plan for employment, which describes the employment goal and the specific services needed to achieve that goal  Education’s Rehabilitation Services Administration (RSA) awards funds to state VR agencies through the program to help individuals with disabilities engage in gainful employment  States must provide a 21 3 percent nonfederal match of these funds  In fiscal year 2016, total program funds for VR—including state match funds—were $3 81 billion  States, territories, and the District of Columbia generally designate a single agency to administer the program, although, depending on state law, states may designate more than one agency  Twenty-three states have two separate agencies, one that exclusively serves blind and visually impaired individuals (known as agencies for the blind) and another that serves individuals who are not blind or visually impaired (known as general agencies)  Twenty-seven states, the District of Columbia, and the five territories have a single combined agency that serves both blind and visually impaired individuals and individuals with other types of impairments (known as combined agencies)  In total, there are 79 state VR agencies  In 2014, WIOA amended the Rehabilitation Act to require state VR agencies to provide students with disabilities with pre-employment transition services  According to information Education provided with its regulations, WIOA emphasized the provision of services to students with disabilities to ensure that they have meaningful opportunities to receive training and other supports and services they need to achieve employment outcomes  WIOA requires states to make pre-employment transition services available statewide to all students with disabilities in need of such services, who are eligible or potentially eligible, regardless of whether a student has submitted an application for services from a state VR agency  In this context, students with disabilities include those with an individualized education program (IEP) for special education services through the school system, those receiving an accommodation for their disability, and others  In information provided with the regulations, Education stated that state VR agencies should work closely with school systems and others to identify these students  WIOA requires each state to reserve at least 15 percent of a state’s VR allotment for a fiscal year for pre-employment transition services for students with disabilities  If a state cannot use or match all of its VR funding, it relinquishes funds to the federal government and the state’s total award amount is then reduced  However, the state must still reserve 15 percent of what it did not relinquish for the provision of pre- employment transition services  WIOA established required activities under pre-employment transition services that states must make available to students with disabilities  Education has provided states with additional information about each of the activities (see table 1)  After making the required pre-employment transition services available, if a state has funding remaining, WIOA lists nine other “authorized” activities that a state may implement  For example, in providing the authorized activities, states may, among other things, provide training to local VR and educational service providers; coordinate transition services with local educational agencies; and disseminate information about innovative, effective, and efficient approaches to achieve the goals (see appendix II for a full listing of authorized activities)  Education’s guidance indicates that such authorized activities should improve the transition of students with disabilities from school to postsecondary education or an employment outcome and support the arrangement or provision of the required activities  WIOA also requires local offices of state VR agencies to conduct coordination responsibilities, which includes coordinating with state and local educational agencies to ensure the provision of pre-employment transition services  These can be conducted concurrently with the “required” activities, and states can use the reserved funds for them  Examples of coordination responsibilities that local offices of state VR agencies must undertake are attending meetings, when invited, about IEPs; and working with the local public workforce system and employers to develop work opportunities for students with disabilities  In support of this coordination and in recognition that VR and educational agencies both offer transition services to students, WIOA requires that VR agencies establish or update their interagency agreements with states educational agencies  Interagency agreements between the state VR and educational agencies are intended to describe the steps each agency will take to implement pre-employment transition services and determine the roles and responsibilities of each agency, including financial responsibilities and procedures for identifying students in need of pre- employment transition services  Following the passage of WIOA, Education, through its Rehabilitation Services Administration (RSA), issued regulations and guidance to implement pre-employment transition services requirements (see fig  1)  Education also provided technical assistance to state VR agencies through webinars, conference calls, and presentations at conferences  For example, Education presented information to state officials in a series of webinars about the new programmatic and financial processes and procedures related to pre-employment transition services just after the final regulations were issued in 2016  In addition, Education funded technical assistance centers to help state VR agencies and their partners answer questions and provide training about WIOA  Two of these centers are the Workforce Innovation Technical Assistance Center (WINTAC) and the National Technical Assistance Center on Transition (NTACT)  Each center focuses its efforts on a specific set of issues: WINTAC on helping state VR agencies implement WIOA requirements, including pre- employment transition services; and NTACT on helping state VR and educational agencies improve outcomes for students receiving transition services  RSA is to conduct periodic monitoring visits to assess state VR agencies’ implementation of the VR program, including pre-employment transition services  RSA is to monitor states for compliance with the administrative, financial, and performance requirements of the program, as well as identify technical assistance needs at individual state VR agencies  According to Education officials, RSA plans to follow a 5-year monitoring cycle that began in fiscal year 2017 and will generally include monitoring visits to 10 states per year through fiscal year 2021  In fiscal year 2017, Education visited 14 VR agencies in 10 states, and in fiscal year 2018, Education plans to visit 15 VR agencies in 12 states  Most state VR agencies that responded to our survey reported expanding services for students with disabilities since WIOA’s enactment in July 2014 by either serving more students through pre-employment transition services or by initiating new or additional services  Most state VR agencies that responded to our survey reported that they provided the five required activities to more students with disabilities since WIOA’s enactment (see fig  2)  State VR agencies indicated in their survey responses that they had previously provided and continue to provide transition services to students who apply and are eligible for the VR program, and many of the activities were not entirely new to state VR agencies  Most agencies that responded to our survey reported providing each of the required activities to students with disabilities before the enactment of WIOA, while fewer reported initiating these services since enactment (see fig  3)  Of the five required activities, instruction in self-advocacy saw the biggest expansion during this time  In information provided with the regulations, Education described instruction in self-advocacy as, for example, classroom lessons in which students learn about their rights, responsibilities, and how to request accommodations or services and supports needed during transition  In written comments on our survey, 10 state VR agencies reported partnering with other organizations, such as universities or centers for independent living, to provide instruction in self- advocacy  One agency reported on our survey that it offers peer mentoring as an additional component of self-advocacy services, and another reported providing self-advocacy and mentoring for deaf-blind students by deaf-blind adults  In October 2016, based on views of an expert panel that we convened on autism spectrum disorders and transitioning youth, we reported that it is critically important that all transitioning youth, regardless of their level of disability, be given the opportunity to state their own preferences to the extent of their capabilities to reach their maximum independence  State VR agencies reported developing additional programming as a result of WIOA’s enactment, including expanding programs for more students, adding new opportunities and experiences, and creating new partnerships  Officials from all four of the state VR agencies we interviewed said they had programs in place prior to WIOA that offered activities similar to pre-employment transition services, but they have since expanded these services or created additional programs for students with disabilities  For example, an official we interviewed from the Idaho Division of Vocational Rehabilitation said the agency had previously worked to enroll students in the VR program prior to graduation, but has since begun developing new programming and instruction aimed at serving larger groups and providing other services, such as a paid work experience  An official from Maryland’s Division of Rehabilitation Services said many of the services they previously offered were during school hours, and students had limited access to these services if they wanted to stay in class  The agency has since added services after school and during the summer, such as opportunities for students to meet with employers, according to Maryland officials  Officials from the Illinois Department of Human Services, Division of Rehabilitation Services, said that while the agency had previously provided work-based learning experiences, it has since expanded the number of spots available for students in an existing program and created a new work-based learning program that is a collaboration between school districts, a community rehabilitation partner, and businesses  Providing new services with specific requirements to an expanded population has been a significant change, according to officials in one of the state VR agencies we interviewed and in all three of our discussion groups  For example, officials from Maryland’s Division of Rehabilitation Services said that, while they provided all five required activities before WIOA, they now provide the activities to a younger population and make the activities available statewide  State VR officials in all three of our discussion groups said that providing pre-employment transition services allows them to provide these services to more students with disabilities or at an earlier age, which will likely have positive effects on students’ transition from school to work  For example, officials in one discussion group noted that the provision of pre-employment transition services is increasing awareness, enhancing services, and increasing the likelihood that VR program outcomes will improve  In another discussion group, officials said their agencies had already seen benefits from pre- employment transition services and the services have raised students’ expectations for the types of jobs they might obtain  While 32 of the state VR agencies responding to our survey reported that they had identified all potentially eligible students, another 37 reported that they were currently in the process of identifying these students  State VR officials in all three of our discussion groups and who we interviewed in two of four state VR agencies said they have had challenges finding the population eligible for services  In written comments on our survey, one agency reported that while statewide information on students was not readily available, officials worked with the state educational agency to identify potentially eligible students, including more than 137,000 students with an IEP and an estimated 13,000 additional students that do not have an IEP  We previously reported on the difficulties state VR officials faced in obtaining data they could use to identify other youth with disabilities  Compared to combined and general agencies, more agencies for the blind reported in our survey that they did not provide the five required activities to more students with disabilities, and officials in some of these agencies said they can serve a much smaller population  For example, 57 percent (12 of 21) of agencies for the blind reported providing job exploration counseling to more students, compared to 83 percent (25 of 30) of combined agencies and 91 percent (20 of 22) of general agencies since WIOA enactment  Similarly, 67 percent (14 of 21) of agencies for the blind reported providing work-based learning experiences to more students, compared to 83 percent (25 of 30) for combined agencies and 86 percent (19 of 22) for general agencies  Officials in some of these agencies for the blind and from the National Council of State Agencies for the Blind (NCSAB) told us in interviews that agencies for the blind have far fewer potentially eligible students they could serve compared to other types of agencies  For example, officials we interviewed with Idaho’s Commission for the Blind and Visually Impaired said that Idaho has only 40 students being provided pre-employment transition services  In contrast, the Idaho Division of Vocational Rehabilitation reportedly provided at least one pre-employment transition service to approximately 700 students in a one-year period  The ability of agencies for the blind to serve more students may also be restricted because they are not able to provide pre-employment transition services to younger students in some cases, according to officials with NCSAB and Idaho’s Commission for the Blind and Visually Impaired  NCSAB officials told us that state VR agencies have traditionally provided VR services to youth who are blind or visually impaired at younger ages compared to general agencies that serve youth with other types of disabilities  The ages at which students may be provided pre-employment transition services varied by agency, based on responses to our survey, but the most common age range reported across all types of agencies was 14 to 21 years old  According to Education officials, as a result of WIOA, two agencies in the same state must agree on a common age range during which students can be provided pre-employment transition services  Most agencies in states with two VR agencies responding to our survey (35 of 44) reported agreeing on an age range for receiving pre- employment transition services  NCSAB officials said that in some cases agencies for the blind have had to raise the minimum age at which they would begin providing services to students  Officials with Idaho’s Commission for the Blind and Visually Impaired, for example, said they would prefer to begin services at younger ages because their agency has the resources to do so  However, officials with Idaho’s Division of Vocational Rehabilitation said they do not have the resources to provide pre-employment transition services to the relatively large number of students with disabilities at a younger age  State VR agencies reported taking a range of actions to build their administrative capacity to implement pre-employment transition services  These actions included building staff capacity and expanding contracts with services providers  Building staff capacity  Most state VR agencies reported building staff capacity to facilitate and carry out the requirements of pre- employment transition services by: Establishing a new specialist position  More than half (45 of 74) of VR agencies reported in our survey establishing at least one new transition specialist position specifically for pre-employment transition services  For example, the Idaho Division of Vocational Rehabilitation reported establishing this position and officials told us that they hired a specialist who was previously the transition coordinator for the state’s educational agency  In written comments on our survey, a respondent from another state commented that their agency has hired 20 pre-employment transition services specialists to provide the five required activities  Officials we interviewed from Maryland’s Division of Rehabilitation Services said they added six salaried positions dedicated to providing pre-employment transition services  Another agency responding to our survey reported dedicating a supervisor and 15 percent of their counselors exclusively to this purpose  Training staff  All 74 state VR agencies reported providing training on pre-employment transition services to their staff  For example, in written comments, one agency reported developing training tools for its counselors, such as answers to frequently asked questions, posting guidance on its intranet, and having WINTAC provide training  Expanding contracts and agreements with service providers  In addition to being provided by state VR agency staff, pre-employment services can be offered through a variety of methods and service providers, and many state VR agencies reported entering into new or additional contracts with service providers or expanding contracts with existing providers  Pre-employment transition services can be provided directly by state VR agency staff or through agreements with third parties, such as community rehabilitation programs, independent living agencies, public colleges and universities, and school districts  In our survey, 62 of 74 agencies reported entering into new or additional contracts with third-party providers to provide pre- employment transition services  Officials we interviewed from three of four state VR agencies said they either established or expanded existing contracts and agreements  For example, officials from the Illinois Department of Human Service, Division of Rehabilitation Services told us that after the enactment of WIOA, they expanded arrangements with independent living centers and initiated a new program that provides students with work experiences  Agencies reported several examples of approaches using third parties: establishing contracts with community rehabilitation programs to partnering with independent living agencies to work with youth on entering into provider agreements with local workforce centers to assist with providing job preparation and a paid work experience, developing programs with public colleges and universities focused on financial literacy and self-advocacy, and contracting with individual school districts to deliver services in the school environment  Twenty-one of 56 states (50 states, 5 territories, and the District of Columbia) reported using the full amount of grant funds they reserved for pre-employment transition services for students with disabilities for fiscal year 2016, according to the most recent full year of data available from Education (see fig  4)  In aggregate, states reportedly expended approximately $357 million out of the approximately $465 million reserved (about $108 million less than the target) for fiscal year 2016  For fiscal year 2015, states reportedly expended approximately $324 million on pre-employment transition services out of the approximately $453 million reserved for that purpose (about $130 million less than the target)  Results from our 2017 survey of state VR agencies revealed similar trends: Fewer than half the 74 agencies reported that they used at least 15 percent of their VR grant allotment each year  Thirty-two of the 74 agencies responding to our survey reported using the minimum required 15 percent of federal VR grant funds reserved for the provision of pre- employment transition services for fiscal years 2016 and 2017  For fiscal year 2015, 25 agencies reported using the required 15 percent minimum reserved funds  Officials we interviewed in two of four state VR agencies and officials in all three discussion groups explained that some of the services they generally provided to participants in the VR program are not allowable for the funds reserved for pre-employment transition services  These expenditures included transportation, tuition, and others associated with individualized services  For example, officials in Maryland’s Division of Rehabilitation Services told us that transportation costs for students to get to the place where the services are provided are not covered  VR agency officials in two of our discussion groups told us that assistive technology, such as hearing aids, could not be paid for with the 15 percent of funds reserved for pre-employment transition services  In another group, participants said that some expenditures, such as tuition or for the services of a job coach to help students with the most significant disabilities, could not be paid with reserved funds  In information provided with the regulations, Education stated that it does not have the statutory authority to allow these expenditures to be paid for with the funds reserved for pre-employment transition services and these services must be paid with other VR funds  When it promulgated its final regulations, Education noted that state VR agencies would experience challenges in using their funds because many of the services provided to students with disabilities prior to WIOA’s enactment would not qualify as pre-employment transition services  Education reviewed past expenditures for a subset of students and estimated that 82 percent of state VR agencies’ reported purchases for those students would not meet the statutory definition of pre-employment services under WIOA  Education concluded that states would have to reach a larger number of students with disabilities in order to meet the spending requirement and that state VR agencies would need to develop and implement aggressive strategies to expend these funds in these initial years of implementation  According to WINTAC officials, state VR agency officials are commonly unclear about what kinds of activities they can provide using the funds reserved for pre-employment transition services  For instance, they said that states must make required activities (e g  work-based learning experiences and self-advocacy) available to all students with disabilities before providing authorized activities (e g  model projects, partnerships), in accordance with WIOA  However, state officials have commonly interpreted that to mean that all students must actually receive the required activities before the agency can begin providing other activities, according to WINTAC officials  WINTAC officials explained that states may have been conducting authorized or coordination activities without knowing these activities could be paid for with the reserved funds  None of the state VR agency officials we interviewed said they had yet moved beyond providing required activities to providing authorized activities  Officials from two of the agencies we interviewed told us they were in the process of planning authorized activities  For example, officials with the Idaho Division of Vocational Rehabilitation said they were completing an assessment of their needs, which would help them plan authorized activities  Officials we interviewed from the other two agencies—the Idaho Commission for the Blind and Visually Impaired and the Illinois Division of Rehabilitation Services—said they did not have the resources to provide authorized activities or were unsure about how to properly transition from required to authorized activities under the current guidance  Education communicated with states on broad requirements but provided little detailed information directly to states on the allowable use of funds reserved for pre-employment transition services  Education provided information when it promulgated final regulations, in grant award notifications, on its website, and in presentations at conferences  In each of these formats, Education described activities on which states could not spend funds, but provided little detailed information on what expenditures are allowed  Regulations: Education’s final regulations restate many provisions in WIOA, including the prohibition on using any of the reserved funds for administrative costs  In responding to comments it received on its proposed regulations, Education provided examples of services that commenters requested would be considered pre-employment transition services, such as, postsecondary education, on-the-job supports, job coaching, travel expenses, and uniforms  In information provided with the regulations, Education explained that it had no statutory authority to expand or limit the pre-employment transition services listed in WIOA  Education stated that a state VR agency can allocate costs associated with staff time spent providing pre- employment transition services, including an employee’s salary and fringe benefits, to the funds reserved for pre-employment transition services  However, Education did not provide additional information on what specific types of expenditures states were permitted to spend funds on in providing pre-employment transition services as required by WIOA  Grant award notification: The notification that accompanies each state’s VR grant award lists the three sets of activities for which the reserved money can be used: required, authorized, and coordination; it lists each of the activities as they are listed in WIOA  It also discusses the prohibition on using any of the reserved funds for administrative costs  It does not list or describe what specific expenditures the reserved funds can be used for to undertake each of the listed activities  Education’s website: A list of frequently asked questions on Education’s website outlines the requirements of WIOA and explains that the reserved funds must only be used to provide pre-employment transition services as listed in WIOA  Similar to the regulations, the website explains that the total costs of an employee’s salary and fringe benefits may be allocated to the reserved funds if that employee is providing only pre-employment transition services to students with disabilities but does not include additional detail for any other expenditures  Presentation materials: In one set of presentation materials, Education provided an example of a potential allowable expenditure for one of the required activities, work-based learning  It did not include information on allowable expenditures for the other four required activities, or any of the nine authorized activities  In another set of presentation materials, Education provided examples of services for each of the five required pre-employment transition services activities  According to Education officials, these examples would be allowable expenditures  Education, however, provided the most detailed information through WINTAC  WINTAC’s website provided answers to some specific questions on the use of funds reserved for pre-employment transition services  In one set of frequently asked questions, WINTAC included a list of 28 questions with detailed answers, including what specific expenditures may be charged to the reserved funds  For example, based upon guidance issued by RSA, the website explains that reserved funds may be used to pay for auxiliary aids and services, such as interpreters, if they are directly related to one of the five required pre-employment transition services activities  However, the reserved funds may not be used to pay for the costs of foreign language interpreters because they are not an auxiliary aid or serve that is required due to the individual’s disability  WINTAC’s website also included answers provided by Education on 13 other frequently asked questions  Information included that reserved funds cannot be used to pay for the cost of an assessment to determine whether a student met the definition of a student with a disability; they can be used to pay for items required by an employer for work-based learning activities  Some state VR agencies we surveyed and those that participated in one of our three discussion groups said they would like more detailed information directly from Education  Seven survey respondents reported that they would like Education to provide answers to their specific questions  In one discussion group, participants noted that when states approach WINTAC with a new question, the technical assistance center sometimes needs to obtain the answer from Education  This process can be inefficient at times  In addition, the answer may not be broadly shared with all the states, limiting its benefit, whereas information issued directly from Education could help communicate the answer more efficiently and broadly  One survey respondent reported, for example, that guidance varied by source—training, Education’s RSA staff, or technical assistance center websites—and said that Education should provide all state VR agencies with the same information at the same time  According to standards for federal internal control, management should communicate externally through reporting lines so that external parties can help the entity achieve its objectives and address related risks  Management should also periodically evaluate its methods of communication so it has the appropriate tools to communicate quality information throughout and outside of the entity on a timely basis  Education officials said that during fiscal years 2015 and 2016, states were unclear about allowable expenditures using reserved funds, and that they plan to clarify guidance as they learn about the issues from states during their monitoring  According to Education officials, they respond to issues that need clarification and provide answers to questions as part of formal monitoring visits or through other communications with state agencies  Education officials said they expect to complete a round of monitoring visits to all states by the end of fiscal year 2021  However, an Education official said they have no timeframe for providing further information on allowable costs to states  With better information on timeframes for when this information will be provided, states would be able to better plan their use of the remaining funds reserved for pre- employment transition services  Most state VR agencies (61 of 74) that responded to our survey reported providing training on pre-employment transition services along with their state’s educational agency since WIOA’s enactment in 2014  Joint training may help coordination between state VR and educational agencies, as state VR officials participating in our discussion groups said that some educators were not familiar with pre-employment transition services  Similarly, an official we interviewed from Idaho’s state educational agency said it was common in the past for teachers and VR counselors not to know one another  Joint trainings provided to VR staff and teachers have improved these relationships, and teachers can invite VR counselors to students’ IEP meetings, the official said  Joint training includes staff presentations at conferences and participation in other training sessions  For example, officials we interviewed from the Idaho Division of Vocational Rehabilitation said their transition coordinator has given presentations to education directors around the state about changes resulting from WIOA and how the inclusion of pre-employment transition services can affect special education for the school districts  In written comments on our survey, one agency reported that it co-sponsors an annual conference with VR, special education, developmental services, and other public and private entities  During this conference, they plan how to improve services for students with disabilities  About one-third of state VR agencies (23 of 74) reported issuing joint guidance with their state’s educational agency, a recommended practice according to WINTAC  The other two-thirds of survey respondents reported that joint guidance was either in progress (27 of 74) or that they had not issued such guidance (23 of 74)  Joint guidance can include written policies and procedures that are created by and provided to state VR and educational agency staff  For example, in written comments on our survey, one agency reported developing written policies and guidance for transition counselors that the state educational agency endorses and provides to special education staff  In Maryland, VR and special education officials told us that they issued guidance through jointly created materials on pre-employment transition services  Less than half the state VR agencies that responded to our survey (34 of 74) reported updating their interagency agreement with their state’s educational agency, which is intended to facilitate collaboration and coordination on delivery of pre-employment transition services  The majority of agencies reported that their agreement is either in progress (37 of 74) or not yet updated (3 of 74)  These required agreements outline how VR agencies and schools will plan and coordinate service provision, provide for each agency’s responsibilities, including financial responsibilities, and provide for student outreach procedures, among other things  Discussion group participants and CSAVR representatives emphasized the value of completing their interagency agreements with the state educational agency

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

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



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



Report 2:  In one group, officials whose agencies had completed their agreements said they are essential for state VR agencies to provide services in schools  Participants in another discussion group explained that once they have a state-level agreement in place, they can discuss what services school districts need for students and then determine how to provide those services  According to state educational agency officials we interviewed, Individuals with Disabilities Education Act (IDEA) requirements are similar to requirements for pre-employment transition services, and they need to coordinate with VR officials at both the state and local levels to agree on each agency’s assigned tasks and expectations  These officials said state VR and educational agencies should coordinate funding to make services available where they are needed and to complement each other’s transition efforts  Illinois’s agreement, for example, specifies that the state educational agency is responsible for providing outreach, guidance, and coordination to local educational agencies regarding the provision of pre-employment transition services  According to the agreement, Illinois’s VR agency is responsible for providing pre-employment transition services, both directly and through cooperative agreements with local educational agencies, and for providing written information to the state educational agency regarding services available to students with disabilities  Officials we interviewed with CSAVR said state VR agencies that have made progress in developing their interagency agreements with state educational agencies tend to be more successful in implementing pre-employment transition services  According to Education officials, Education provides guidance and technical assistance on interagency agreements to states as part of Education’s monitoring or when asked by states  Education officials said they provide technical assistance during periodic monitoring visits, which are currently limited to about 10 states per year from fiscal years 2017- 2021; by helping state VR agencies develop policies and procedures; and by making sure pre-employment transition services are coordinated with the state educational agency and through interagency agreements  According to Education officials, there is no statutory provision authorizing Education to identify states that have not updated their interagency agreement  Education officials said they do not collect information from state VR agencies on the status of these agreements except when they conduct monitoring visits in specific states  In addition, Education officials said that when monitoring, they may meet with state educational agency partners to help them understand the new components of pre- employment transition services in an agreement, or they may refer the state agencies to WINTAC or NTACT resources  Providing assistance during monitoring may be helpful for some states  However, given that less than half of state VR agencies we surveyed reported updating and finalizing their agreements and Education officials say they will take another three years to complete this round of monitoring, additional action by Education may be needed to raise awareness among the remaining states about the importance of these agreements to help states coordinate services to students with disabilities  Additional action could include, for example, conducting earlier state outreach or monitoring to assess state progress on finalizing the interagency agreements and offering technical assistance when appropriate  However, Education officials said there is no requirement that state educational agencies provide pre-employment transition services to meet their obligations to IDEA-eligible students with disabilities under part B of the Individuals with Disabilities Education Act  As a result, WINTAC and participants in our discussion groups explained that it can be difficult to get state educational agencies to work with state VR agencies to update interagency agreements  Education officials said that WIOA requires state VR agencies to update these interagency agreements to include pre- employment transition services but they do not track their completion because states are not required to report when the agreements are finalized  Moreover, Education officials said they have heard from states that some reasons that interagency agreements are not specifically updated are that the agreements are written broadly enough so that they can remain in effect when there are additional changes to the law, the details of actual practices are rarely reflected in the high level of an interagency agreement, and that modifications to agreements are time- consuming and would not result in changes to the interagency coordination practice  Without an updated agreement between the state VR and educational agencies, efforts to collaborate on pre-employment transition services may be hindered  Officials with the National Technical Assistance Center on Transition (NTACT) told us that some of the state agencies for which they provided in-depth technical assistance were not working closely together  Officials from two of the three state educational agencies we interviewed said they viewed pre-employment transition services as primarily the responsibility of the VR agency  State VR officials in all three of our discussion groups said they have experienced coordination challenges, including difficulty determining each agency’s responsibilities for providing pre-employment transition services, obtaining data needed to identify and provide services to students, and determining which agency will pay for which services, among other challenges  Interagency agreements can help to address these types of issues  Federal internal controls recommend that management communicate with and obtain information to identify, analyze, and respond to risks related to achieving defined objectives, such as those that can arise from new laws and regulations  Moreover, we found in prior work that it is important to establish ways to operate across agency boundaries, with measures such as developing common terminology and fostering open lines of communication  A lack of collaboration between state VR and educational agencies increases the risk that some students will not successfully transition from school to post-school activities  In addition, our prior work has identified lack of collaboration among and between federal agencies and state and local governments as a challenge to effective grant implementation  Interagency agreements are intended to serve as a mechanism related to collaboration practices, which include defining a common outcome, establishing joint strategies, and agreeing on roles and responsibilities of each agency  By taking additional steps, such as discussing the benefits of finalizing interagency agreements, and reminding states of existing technical assistance resources pertaining to updating and finalizing interagency agreements, Education would help raise awareness about the importance of the agreements and be better positioned to help states efficiently and effectively coordinate services to students with disabilities  Most state VR agencies (63 of 74) that responded to our survey reported that additional assistance with identifying best practices would be useful to their agencies  Similarly, state VR officials in all three of our discussion groups spoke to the need for Education to develop and disseminate best practices to help states, for example, comply with program requirements  WIOA requires Education to highlight best state practices on pre-employment transition services  Best practices may also help states address the challenges they reported facing in implementing and administering pre-employment transition services for students with disabilities, such as (1) coordinating with state educational agencies, (2) using VR resources more efficiently and effectively to help states balance providing pre-employment services with the full VR program, and (3) collecting data on services provided, and (4) updating data tracking systems  Coordinating service delivery with state educational agencies  Over half (41 of 74) of state VR agencies reported in our survey that additional assistance on coordinating with state educational agencies would be useful for them  Similarly, officials from all three state educational agencies we interviewed said they would like additional assistance on interagency collaboration  Officials with NTACT told us that some of the state agencies for which they provided in-depth technical assistance were not working closely together  Officials from two of the three state educational agencies we interviewed said they viewed pre-employment transition services as primarily the responsibility of the VR agency  State VR officials in all three of our discussion groups said they have experienced coordination challenges, including difficulty determining each agency’s responsibilities for providing pre-employment transition services, obtaining data needed to identify and provide services to students, and determining which agency will pay for which services, among other challenges  An official we interviewed from the Idaho Department of Education said it would be helpful to have more clearly defined roles, obligations, and means of sharing data between the state-level agencies  In written responses to our survey, one respondent said having examples of highly successful collaborations between a state educational agency and state VR agencies would be helpful  According to Education’s guidance, a student’s transition from school to post-school activities is a shared responsibility and coordination and collaboration between the state VR and educational agencies is essential  However, according to information Education provided with the regulations, while some have sought clarification and additional guidance in this area, Education determined that decisions on agencies’ responsibilities must be made at the state level to allow states maximum flexibility allowed under the law  In the absence of more specific guidelines for how state agencies should collaborate, best practices from other states could provide helpful examples  Balancing pre-employment transition services with VR services  Several state VR agencies in both our written survey responses and in discussion groups noted that by increasing services mandated for pre-employment transition services for students, they have had to reduce VR services to adults, which has made it difficult to balance the two programs  In issuing its final regulations, Education acknowledged that reserving funds would decrease amounts available for the full VR program, resulting in a transfer of benefits from individuals historically served by VR to students with disabilities in need of transition services  According to state VR directors with the National Council of State Agencies for the Blind (NCSAB), agencies for the blind have had to restrict VR services while also not being able to use all of the funds reserved for pre-employment transition services for students with disabilities because VR services cannot be paid with reserved funds  Most state VR agencies that completed our survey (50 of 74) reported that balancing pre-employment transition services with other vocational rehabilitation services was moderately difficult, very difficult, or extremely difficult during federal fiscal year 2017  Collecting data  Data collection was one of the top challenges identified by state VR agencies in our survey, with 48 of 74 reporting that collecting data on the provision of pre-employment transition services was moderately difficult, very difficult, or extremely difficult during fiscal year 2017  Prior to WIOA, agencies collected and reported data only on individuals who had applied and enrolled in the VR program  For pre-employment transition services, agencies now collect data on who provided and received each of the five required activities, including for individuals who have not submitted a VR application  State VR officials in two of our three discussion groups said that they have experienced challenges collecting sensitive information (such as social security numbers) for minors and collecting data on individuals for group services  Officials in one of the three discussion groups also said that these problems are particularly significant when trying to collect information on potentially eligible students for whom they do not have open VR cases  These students could include all those with an IEP and those that receive accommodations in school based on their disability, among others  Updating data tracking systems  Updating data systems was also one of the top challenges reported in our survey, and was cited as an additional administrative burden by state VR officials in our discussion groups  Specifically, 53 of 74 state VR agencies reported that it was moderately difficult, very difficult, or extremely difficult to update tracking systems to collect and report financial and service data on pre-employment transition services during fiscal year 2017  According to a state VR agency official we interviewed, updating that state’s tracking system is difficult because data collected on pre-employment transition services—such as the type of service provider and how the service was provided—do not fit well into a case management system designed for the full VR program  Updating these tracking systems also created an additional administrative burden for VR agency staff, according to officials from all three discussion groups and three of the four state agencies that we interviewed  Officials in two of our three discussion groups said that they have one or more full-time staff members doing only administrative tasks or that they have had to hire additional staff to handle data tracking  Education officials said that they plan to document and share best practices with states; however, they said the agency does not have a final written plan for managing these efforts because plans are still under discussion in light of inquiries received  Education officials said they are collecting information on state VR agencies’ practices through monitoring and they are sharing this information with WINTAC—information that could be useful for sharing best practices across states—but a comprehensive summary of states’ efforts will not be available until after Education officials conduct monitoring visits of all states by the end of fiscal year 2021  In addition, in a 2015 technical assistance circular, Education recommended that state VR agencies consult with other federal, state, and local agencies to identify best practices for providing pre-employment transition services to students and youth with a variety of disabilities  Education officials also said that they are looking for opportunities, such as webinars and conferences, to share information with states  However, Education does not have set timeframes and has not detailed the specific steps and activities for fully leveraging knowledge to address common challenges, or for finalizing and disseminating best practices  By doing so, Education would be better positioned to provide best practices information to state VR agencies to better serve students with disabilities who are transitioning from high school  Pre-employment transition services are designed to help students with disabilities begin to identify career interests and move from high school to post-secondary education or employment  Using federal funding, state VR agencies reported that they have generally enhanced their services and staff capacity and begun to coordinate with state educational agencies  As a result, state VR agencies generally reported serving an increased number of students  However, most states reported they have not used all the funds reserved for pre-employment transition services or updated interagency agreements between state VR and educational agencies  Education has developed multiple forms of guidance and made presentations, either directly or through its technical assistance centers  Education officials said they plan to issue additional guidance as needed  However, without clear timeframes for the issuance of this guidance, states do not know when information will become available to help them make decisions on allowable expenditures for pre-employment transition services  As a result, opportunities may be missed to identify and serve all students who might be eligible, and unserved students could continue to face difficulties preparing for a future of meaningful post-secondary education or employment  In addition, agreements between state VR and educational agencies can help facilitate the effective coordination of and financial responsibility for services  Finally, WIOA requires Education to highlight best state practices for implementing pre-employment transition services  Developing a written plan with specific timeframes would help Education provide states with information on best practices, such as balancing service delivery between pre-employment transition services and other VR services and collecting data that other states may have successfully addressed  We are making the following three recommendations to Education: The Secretary of Education should establish timeframes for providing states with additional information on allowable expenditures of funds reserved for pre-employment transition services  (Recommendation 1) The Secretary of Education should take additional steps to provide states assistance on updating and finalizing their interagency agreements with state educational agencies to include pre-employment transition services  These steps could include, for example, accelerating their efforts to discuss the benefits of finalizing interagency agreements, and reminding states of existing technical assistance resources pertaining to updating and finalizing interagency agreements  (Recommendation 2) The Secretary of Education should develop a written plan with specific timeframes and activities for identifying and disseminating best practices that address, as appropriate, implementation challenges for pre- employment transition services, such as those identified in this report  (Recommendation 3) We provided a draft of this report to Education for review and comment  Education’s written comments are reproduced in appendix III  Education also provided technical comments, which we incorporated into our report where appropriate  Education concurred with recommendation 1 and disagreed with recommendations 2 and 3 in the draft report  With regard to recommendation 1, Education stated that it agreed and will establish projected timeframes for providing states with additional information on allowable expenditures for the provision of pre- employment transition services  Education also stated that it intends to provide states with additional information in at least two forums before the end of calendar year 2018 and to review and analyze previous guidance provided to states on allowable expenditures  With regard to the draft report’s recommendation 2, which called for Education to identify states that have not updated and finalized their interagency agreements to include pre-employment transition services, Education stated that it disagreed, in large part, because there is no statutory provision authorizing the agency to identify such states  However, Education is taking some steps as part of its ongoing monitoring of the VR program to provide assistance to states that have not updated their interagency agreements, which is consistent with the intention of our recommendation, but more could be done  Education stated that it will continue to offer and provide technical assistance if it becomes known through the onsite monitoring of the VR program or through other means that states have not updated their interagency agreements between VR agencies and state educational agencies  It also noted that the Rehabilitation Services Administration (RSA) and its Office of Special Education Programs will provide information related to sources of technical assistance, as appropriate, to VR agencies and state educational agencies  While these steps may be helpful, given the number of states that have not updated and finalized their agreements and the length of time Education officials say they will take to complete this round of monitoring where Education asks state VR agencies about these agreements, additional action by Education may be needed to help states more efficiently and effectively coordinate services to students with disabilities  Education also wrote that while the Rehabilitation Act requires an interagency agreement, the Individuals with Disabilities Education Act does not contain a parallel requirement for state and local educational agencies with respect to the provision of pre-employment transition services or the incorporation of such discussion into the interagency agreement  In light of these differing requirements, as we state in our report, stakeholders with whom we spoke indicated it can be difficult to get state educational agencies to work with state VR agencies to update interagency agreements  Therefore, it is all the more important for Education to take additional action to engage with VR agencies regarding interagency agreements and to work closely with VR agencies as Education becomes aware of states that have not updated their agreements  Education suggested a modified recommendation that removed reference to Education identifying states that have not updated and finalized their agreements  We modified the recommendation and the report to address Education’s concerns about its authority to identify states  By taking additional steps, such as discussing the benefits of finalizing interagency agreements, and reminding states of existing technical assistance resources pertaining to updating and finalizing interagency agreements, Education would help raise awareness about the importance of the interagency agreements and be better positioned to help states efficiently and effectively coordinate services to students with disabilities  With regard to recommendation 3, Education stated that it disagreed because it is premature to develop a timeline for the dissemination of best practices  Education stated that the identification of “best” practices, meaning those that are clearly supported by a body of evidence derived from valid and reliable research findings, is still emerging as states implement the requirements  Education suggested a modified recommendation that included planning for the dissemination of best practices identified by states as they become available  Education stated in its comments that as RSA identifies best practices through its monitoring and technical assistance activities, it will, in collaboration with its Office of Special Education Programs, consider when and how best to disseminate this information to state VR and educational agencies  With regard to including specific timeframes and activities in a written plan, by detailing the specific steps Education is taking and plans to take along with the amount of time it expects them to take, Education would be better positioned to complete those steps in a timely manner and meet the statutory requirement that Education highlight best state practices and support state agencies  As agreed with your office, 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 appropriate congressional committees and the Secretary of Education  In addition, the report will be available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact Elizabeth H  Curda at (202) 512-7215 or curdae@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 who made key contributions to this report are listed in appendix IV  The objectives of this report are to examine (1) the steps states have reported taking to implement pre-employment transition services, and (2) the implementation challenges, if any, states reported facing, and how the Department of Education (Education) has addressed them  To address these objectives, we reviewed federal laws and regulations, and Education’s guidance and technical assistance documents, including circulars, policy directives, and transition guides  We also reviewed expenditure data reported by state vocational rehabilitation (VR) agencies to Education for fiscal years 2015 and 2016, the most recent full years of data available  To assess the reliability of the data, we interviewed Education officials about their collection of the data and their opinion of the data’s quality, completeness, and accuracy  We also electronically tested the data for any obvious errors  We determined that the data were reliable for the purposes of our review  We interviewed representatives from the Council of State Administrators of Vocational Rehabilitation (CSAVR) and the National Council of State Agencies for the Blind  In addition, we interviewed officials from Education’s Office of Special Education and Rehabilitation Services, Rehabilitation Services Administration, Office of Special Education Programs, and the Workforce Innovation Technical Assistance Center and National Technical Assistance Center on Transition—two technical assistance centers funded by Education  To address both of the objectives, we conducted a survey of all 79 state VR agencies from October through December 2017  Seventy-four of the 79 agencies (94 percent) responded  The survey questionnaire included open-ended and closed-ended questions about agencies’ efforts to train staff, update interagency agreements, expand services to students with disabilities, and other issues  We took steps to minimize the potential errors that may be introduced by the practical difficulties of conducting any survey  Because we selected the entire population of VR agencies for our survey, our estimates are not subject to sampling error  We conducted pretests of the draft questionnaire with three agencies in the population and made revisions to reduce the possibility of measurement error from differences in how questions were interpreted and the sources of information available to respondents  We reviewed state officials’ submitted survey responses and conducted follow-up, as necessary, to determine that their responses were complete, reasonable, and sufficiently reliable for the purposes of this report  A second independent analyst checked the accuracy of all computer analyses we performed to minimize the likelihood of errors in data processing  We made multiple follow-up attempts during the survey with agencies that had not yet responded  The five agencies that did not respond had smaller values, on average, on three characteristics related to size, than those that did respond  The nonrespondents tended to be smaller than respondent agencies  The sums totals for each of these three characteristics across the five nonresponding agencies comprised less than 1 percent of the totals for the population, suggesting a lower possibility of material error in our results from nonresponse  For more in-depth information on both of the objectives, we conducted interviews and held discussion groups  We conducted interviews with officials in Idaho, Illinois, and Maryland  For each state, we interviewed state VR officials and state educational agency officials  We selected these states for variety using the following criteria: size of the special education population (large, medium, and small); state agency organization, for example, whether the VR agency was organized under the state’s educational or other department; and whether the state had a second agency for serving individuals who are blind or visually impaired  We convened three discussion groups with state VR agency directors or their designated officials, with a total of 39 participants from 29 separate agencies (10 to 12 agencies represented per discussion group)  These discussion groups took place during a conference of state VR directors in November 2017 in Greenville, South Carolina  To select participants, we worked with the conference organizer, CSAVR, to send invitations for our discussion groups to all conference attendees  We additionally included a question in our survey asking respondents whether they would like to participate in discussion groups at the conference, and contacted those who responded affirmatively via phone and email  We moderated each discussion to keep participants focused on the specified issues within discussion timeframes  To assess Education’s efforts to address state VR agencies’ challenges in providing pre-employment transition services, we applied standards for internal control in the federal government  Specifically, we applied principle 15 related to communicating with external parties  In addition, regarding Education’s assistance to state VR agencies’ efforts to update interagency agreements with state educational agencies, we also applied key considerations for implementing interagency collaborative mechanisms that we have previously identified  We conducted this performance audit from February 2017 to September 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  Elizabeth H  Curda, (202) 512-7215 or curdae@gao gov  In addition to the contact named above, Sara Schibanoff Kelly (Assistant Director), Paul Schearf (Analyst-In-Charge), Matthew Rabe, and Paul Wright made key contributions to this report  Also contributing to this report were James Bennett, Kristy Kennedy, Sheila R  McCoy, Thomas James, Jessica Orr, Sam Portnow, Carl Ramirez, Monica Savoy, Kate Van Gelder, Adam Wendel, and James Whitcomb  Workforce Innovation and Opportunity Act: States and Local Areas Report Progress in Meeting Youth Program Requirements  GAO-18-475  Washington, D C : June 15, 2018  Supplemental Security Income: SSA Could Strengthen Its Efforts to Encourage Employment for Transition-Age Youth  GAO-17-485  Washington, D C : May 17, 2017  Youth with Autism: Federal Agencies Should Take Additional Action to Support Transition-Age Youth  GAO-17-352  Washington, D C : May 4, 2017  Youth with Autism: Roundtable Views of Services Needed During the Transition into Adulthood  GAO-17-109  Washington, D C : October 18, 2016  Students with Disabilities: Better Federal Coordination Could Lessen Challenges in the Transition from High School  GAO-12-594  Washington, D C : July 12, 2012 
Report 2:  An exact match between the level of user fees and publicly provided benefits may be hard or impossible to determine in many situations  While public corporations operating on a largely commercial basis, such as the Tennessee Valley Authority, may set prices and fees much as a private firm would, many of the federal government's activities are within the public sector because past policymakers considered them to be closely associated with inherently governmental functions—such as providing security—or as services that the private sector would have had trouble providing, such as basic research  The U S  Postal Service sets rates to cover nearly all of its costs according to a 2006 statutory framework   Subsidized rates for certain classes of mail users, such as the blind, reflect adaptation of pricing schemes to broader social priorities  The proper boundaries between public, private, and nonprofit sectors, of course, is an ongoing concern of policymakers  In many cases, it is difficult to design fees, charges, or taxes that directly influence activities generating negative spillovers  For instance, cars and trucks generate air pollution as well as wear and tear on roadways  Excise taxes on gasoline and other fuels—if set at levels that approximate the costs of pollution and road wear—can motivate drivers to use roads less often when the total costs of driving, including pollution, road wear, and other costs, exceed the benefits of driving  Thus, excise taxes can be a way of using the price mechanism to induce individuals to make decisions that lead to more economically efficient outcomes  Setting excise taxes at levels that reflect all costs to third parties may involve complex estimates  For instance, while higher fuel usage implies greater use of roads and more production of air pollutants, several other factors complicate that linkage  Heavier vehicles may cause disproportionate damage to roads  Vehicles vary widely in fuel efficiency and in the volume of pollutants generated  In addition, driving also imposes congestion costs on other drivers, and those costs vary by location and time of day  One recent analysis estimated that fuel excise taxes addressed less than a third of the air-pollution-related efficiency losses  While excise taxes are a public finance instrument that is distinct from user fees and charges, similar complications may be encountered  In some cases, adopting new fiscal instruments—such as using road charges or tolls—may prove more effective tools in increasing efficiency  In the case of transportation policy, increased economic efficiency, depending on how consumers and policymakers respond, might manifest itself in some combination of higher after-tax incomes, greater provision of publicly provided goods, cleaner air, and less-congested highways  Changes in the design of some user fees or charges might also yield analogous efficiency improvements  Some observers have raised concerns that federal agencies that rely more heavily on user fees may put greater weight on the interests of those paying fees rather than the broader public interest  For instance, the U S  Patent and Trademark Office charges application and examination fees to those seeking to obtain a patent  Certainly, the applicant would be a central beneficiary of a patent, if granted, although many others—including other inventors, business competitors, and consumers—might also be significantly harmed or benefited  Some contend that the Patent Office's reliance on fees motivates it to approve invalid patents   Tying patent fees narrowly to the benefits obtained by the applicant, while overlooking wider spillover effects, might then result in poor decisions  Of course, nonfinancial policy instruments, such as applicable laws, regulations, or congressional oversight, may affect outcomes more directly  Administrative concerns may also play a role  In some cases, where the costs of collecting fees are high relative to the costs of providing public services, imposing user fees may be a suboptimal choice of funding  For instance, federal courts collect more in PACER fees (which provide access to court documents ) than is needed to maintain the underlying computer system , with excess fees being earmarked for other court improvements  Some argue that funding that system and other court improvements with general revenues would allow broader access to court filings and related public documents, which one proposal ( H R  6714 introduced in the 115 th Congress ) would have implemented  Charging access fees above incremental costs—which for electronic documents may be minimal—can limit access to public information  Eliminating PACER user fees , however, may require Congress to shift that fiscal burden elsewhere  Other policy concerns also may play a role  Ability to pay among households varies widely; a national park entrance fee that one family regarded as trivial might deter another family  Policymakers may also wish to express preferences for identifiable groups, such as the elderly, children, or veterans  The classification of fees, charges, taxes, and even negative loan subsidy amounts hinges on budget concepts outlined above along with scorekeeping rules and precedents  In some cases, the distinctions made to categorize a given receipt might seem arbitrary to some  For example, the Travel Promotion Act fees imposed on most international air travelers convey n o special benefit on them, but are not categorized a s tax es   Refundable biofuel tax credits are counted as negative taxes in budget documents rather than as subsidy outlays  Those distinctions, however, can affect the tax treatment of those receipts  For instance, a firm can generally deduct an excise tax from its gross revenues, but typically cannot deduct a fee  Some governments have instituted user fees to fill shortfalls in tax revenues  The economic burden of higher fees or charges might be less obvious and therefore subject to less resistance than broad-based taxes  For example, policymakers in several states have sought to avoid increases in general taxes by increasing fee revenues  That strategy may have two downsides  First, more narrowly focused fees set at higher levels could cause greater economic distortions than smaller taxes applied to a broader base  Second, more narrowly based fees might be less stable in economic downturns  To the extent that fees diverge from the incremental costs of publicly provided services, sudden fiscal adjustments might be required  If benefits from federal operations are distributed narrowly enough to justify financing them via user fees or charges, one might ask whether those activities should be carried out by the private sector  State and local governments and the federal government have privatized many services previously provided by government  Foreign governments have also privatized provision of goods and services once delivered by the public sector  Some activities, however, may involve inherently governmental responsibilities that would be difficult to devolve to the private sector  A 1997 GAO report noted that rigorous evaluations of cost savings of privatization initiatives at the state and local government level were not common  GAO also noted that privatization increased the need for oversight and evaluation, although some local officials deemed that the "weakest link" in privatization initiatives  Others note that while privatization may yield efficiency gains, it may also lead to policy or operational failure  Conflicts between executive branch agencies, which often have sought greater flexibility to use funds to respond to public priorities as they see them, and Congress, which has sought to defend its fiscal prerogatives and ability to set federal policy priorities, are long-standing  In 1849, Congress sought to bolster its powers of the purse by passing the Miscellaneous Receipts Act , which required all government revenues, aside from postal sales, to be deposited into the U S  Treasury "at as early a day as practicable, without any abatement or deduction on account of salary, fees, costs, charges, expenses, or claim of any description whatever…" Over time, Congress set out exceptions to the modern version of the Miscellaneous Receipts Act that let agencies charge user fees, accept gifts, and collect and retain fines and penalties within specified limits or as detailed in appropriations laws  Some legislative proposals, such as H R  850 (115 th Congress) , would eliminate most exceptions and require most fees and charges to be deposited in the U S  Treasury General Fund  Congress could fund agencies and activities directly through annual appropriations  Funding through lump-sum appropriations, as opposed to via user fees, however, might change incentives facing decisionmakers and could affect federal operations and programmatic outcomes  Congress could constrain agency discretion by requiring more user fee proceeds be either subject to annual appropriations or deposited in the U S  Treasury General Fund, although that may limit agencies' capacity to respond to new public demands and other changing conditions, as the Government Accountability Office (GAO) has noted   Some inspectors general and congressional committees have also called for tighter, more efficient, and more consistent financial management of user fee funds  During the mid-1980s, Congress, with GAO support, conducted a comprehensive review of so-called "backdoor spending"—an informal term for budget authority provided in laws other than appropriations acts—including spending supported by user fees, which was updated in 1996   A narrower follow-up in 2017 covering five agencies concluded that "all entities GAO examined have policies and procedures to manage and report on their permanent funding authorities," but that "some, however, could improve practices to manage funds and report information that facilitates oversight " Sweeping changes to the budgetary treatment of user fees, however, could add new pressures on the congressional appropriations process  Proposals to require that most fees be collected into the Treasury General Fund and that activities previously supported by those fees be funded by annual appropriations could create new demands on appropriations committees  Such proposals could also affect the division of responsibilities among authorizing committees and appropriations committees  Statutory texts governing many fees, including those noted above, have evolved over many years and involve substantive policy decisions, often related to industry or programmatic concerns  Congress may also enhance its oversight of agencies reliant on user fees by requiring more timely and detailed financial reports as well as more precise and systematic explanations of linkages between those fees and associated programs  OMB and Treasury issue extensive information on user fees and charges  Nonetheless, the format and level of detail of published data make it difficult to address some government-wide policy questions regarding user fees and charges  Congress could modify laws governing the President's budget submission (31 U S C  1105) to require OMB to release data that it collects on which budget accounts receive material amounts of user fee and user charge revenues  That could allow Congress to track and analyze user fees and charges more easily  In particular, it would also provide a means to distinguish discretionary and mandatory fees and charges, which could be useful in understanding the effects or constraints imposed by budget enforcement measures  That might provide Congress with a clearer view of its fiscal options when considering budgetary measures  Mandating that OMB or other agencies provide more data would probably require additional budgetary resources to cover costs of new personnel and capabilities  Congress can promote economic efficiency and an equitable sharing of public burdens by choosing appropriate means of financing federal operations  User fees and charges, as noted above, can help tie the costs of supporting specific federal operations with those who benefit from them  Even if closely regulated industries may find federal requirements, inspections, or approval processes burdensome, they also presumably benefit from the increased demand for their products that carry the imprimatur of explicit or implicit federal approval  Federal regulation and inspection operations, however, also serve broader interests of consumers, taxpayers, and related industries  To the extent that inherently governmental responsibilities motivate federal operations, the argument for using general revenues may be stronger  If benefits of federal actions are more narrowly distributed, the case for financing operations with user fees or charges may become stronger  Of course, the structure and administration of federal inspection and regulation plays a central role in enhancing efficiency and minimizing burdens borne relative to benefits enjoyed 

ground_truth: WIOA requires states to reserve at least 15 percent of their total State Vocational Rehabilitation Services program funds to provide pre-employment transition services to help students with disabilities transition from school to work. GAO was asked to review how states were implementing these services. This report examines (1) steps states reported taking to implement pre-employment transition services, and (2) implementation challenges states reported and how Education has addressed them. GAO reviewed documents and funding data from Education, and federal laws and regulations; surveyed all 79 state VR agencies (74 responded); held discussion groups with representatives of 29 state VR agencies; and interviewed officials from Education and three states (Idaho, Illinois, and Maryland) GAO selected for variety in size and type of agencies, among other factors. Of the 74 state vocational rehabilitation (VR) agencies that responded to GAO's survey, most reported expanding services to help students with disabilities transition from school to work as required under the Workforce Innovation and Opportunity Act (WIOA), enacted in July 2014. Most state agencies reported serving more students and providing work-based learning experiences and other activities, referred to as pre-employment transition services (see figure). State VR agencies reported two key challenges with implementing pre-employment transition services for students as required by WIOA. Spending reserved funds : States reported spending about $357 million out of the $465 million reserved for these services in fiscal year 2016. Education officials said that states had difficulty determining what expenditures were allowable, and some state officials said they would like more detailed information from Education. Education officials said they plan to clarify guidance but have no timeframe for providing further information, which would help states to better plan their use of reserved funds. Finalizing interagency agreements : Fewer than half the state VR agencies that responded to GAO's survey (34 of 74) reported updating their interagency agreement with their state's educational agency. Interagency agreements can help promote collaboration by, for example, establishing roles and responsibilities of each agency. Although Education offers technical assistance on interagency agreements, without increased efforts to raise awareness about the importance of these agreements and provide assistance to states where needed, Education may miss opportunities to help state VR and educational agencies efficiently and effectively coordinate services. In addition, WIOA requires Education to highlight best state practices, and most VR agencies responding to GAO's survey (63 of 74) reported this would be useful. Education does not have a written plan or timeframe for identifying and disseminating best practices. As a result, Education may miss opportunities to help more students with disabilities successfully transition from school to work. GAO is recommending that Education (1) establish timeframes for providing additional information on allowable expenditures, (2) take additional steps to assist states that have not updated and finalized their interagency agreements, and (3) develop a written plan with specific timeframes and activities for identifying and disseminating best practices. Education agreed with the first recommendation and disagreed with the other two. GAO revised the second recommendation and maintains that specific information is needed for the third, as discussed in the report.