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



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



Report 2: Our simulations suggest that the sector will likely continue to face a difference between revenue and spending during the next 50 years  This long-term outlook is measured by the operating balance—a measure of the sector’s ability to cover its current expenditures out of current receipts  While both expenditures and revenues are projected to increase as a percentage of gross domestic product (GDP) during the simulation period, a difference between the two is projected to persist because expenditures are generally expected to grow at a faster rate than revenues  (see figure 1)  Absent any policy changes by state and local governments, revenues are likely to be insufficient to maintain the sector’s capacity to provide services at levels consistent with current policies during the next 50 years  Our simulations suggest that state and local governments will need to make policy changes to avoid fiscal imbalances before then and assure that revenues are at least equal to expenditures  We simulated the state and local government sector’s operating balance (the difference between the sector’s operating revenues and operating expenditures) in order to understand the sector’s long-term fiscal outlook  The sector’s operating expenditures were 15 1 percent of GDP in 2017  As shown in figure 2, these state and local government sector operating expenditures are comprised of employee compensation, social benefit payments, interest payments, capital outlays, and other expenditures  The sector’s operating revenues were 13 8 percent of GDP in 2017  As shown in figure 3, these state and local government sector operating revenues are comprised of taxes, transfer receipts, and other types of revenues  One way of measuring the long-term fiscal challenges faced by the state and local government sector is through an indicator known as the “fiscal gap ” The fiscal gap is an estimate of actions—such as revenue increases or expenditure reductions—that must be taken today and maintained for each year going forward to achieve fiscal balance during the simulation period  While we measured the gap as the amount of reductions in expenditures needed to prevent negative operating balances, increases in revenues, reductions in expenditures, or a combination of the two of sufficient magnitude would allow the sector to close the fiscal gap  Our simulations suggest that the fiscal gap is about 14 7 percent of total expenditures or about 2 4 percent of GDP  That is, assuming no change in projected total revenues, eliminating the difference between the sector’s expenditures and revenues during the 50-year simulation period would likely require action to be taken today, and maintained for each year equivalent to a 14 7 percent reduction in the sector’s total expenditures (see figure 4)  Alternatively, assuming no change in projected total expenditures, closing the fiscal gap by increasing revenue would also likely require actions of similar magnitude  More likely, eliminating the difference between expenditures and revenues would involve some combination of spending reductions and revenue increases  Our simulations suggest that growth in the sector’s overall spending is largely driven by health care expenditures  As shown in figure 5, these expenditures are projected to increase from about 4 1 percent of GDP in 2018 to 6 3 percent of GDP in 2067  Two types of health care expenditures—Medicaid spending and spending on health benefits for state and local government employees and retirees—will likely constitute a growing expenditure for state and local governments during the simulation period  Medicaid expenditures are expected to rise, on average, by 1 percentage point more than GDP each year  According to CBO, growth in Medicaid spending reflects growth in both the number of people receiving Medicaid benefits and the cost of Medicaid benefits each person receives  Specifically, CBO reported that between 2019 and 2028, Medicaid spending is projected to grow at an average rate of 5 5 percent per year—nearly 5 percentage points of this growth is due to an increase in per capita costs and about 1 percentage point of this growth is due to an increase in enrollment  Data from CBO and the Centers for Medicare & Medicaid Services (CMS) also suggest that growth in Medicaid spending per capita is generally expected to outpace GDP growth in the future—referred to as excess cost growth  Our estimates of Medicaid excess cost growth using CMS data suggest that Medicaid spending per capita will grow, on average, about 0 5 percent faster than GDP per capita for the period from 2018 through 2067  Our simulations also suggest that health benefits for state and local government employees and retirees—a type of employee compensation spending—are likely to rise, on average, by 0 9 percentage points more than GDP each year  Growth in these health benefits also reflects growth in the projected number of employees and retirees and growth in the projected amount of health benefits for each employee and retiree  Growth in spending by states and local governments on health care per capita, which includes spending on employee and retiree health benefits, is generally expected to outpace GDP per capita  Data from CMS suggest that national health expenditures per capita are likely to grow on average about 0 8 percent faster than GDP per capita each year during the simulation period from 2018 through 2067  If employee and retiree health benefits follow trends in overall national health spending, they will likely make up an increasingly large share of total employee compensation going forward (see figure 6)  While state and local government contributions to employee pension plans—another type of employee compensation spending—will likely decline as a percentage of GDP, as shown in figure 6, our simulations nonetheless suggest that state and local governments may need to take steps to manage their pension obligations in the future  From 1998 through 2007, state and local governments’ pension contributions amounted to about 8 percent of wages and salaries on average  In addition, for the period from 2008 through 2017, pension contributions amounted to about 12 3 percent of wages and salaries on average  Our simulations suggest that those pension contributions will need to be about 12 9 percent of wages and salaries for state and local governments to meet their long-term pension obligations  This is the case even though pension asset values have increased in recent years, from about $2 4 trillion in 2008 to about $4 2 trillion in 2017 (adjusted for inflation and measured in 2012 dollars)  This suggests that state and local governments may need to take additional steps to manage their pension obligations by reducing benefits or increasing employees’ contributions  Along with pension contributions, other types of state and local government expenditures are projected to grow more slowly than GDP  For example, in 2017, wages and salaries of state and local government employees constituted a large expenditure for the sector  However, these expenditures are projected to decline as a percentage of GDP during the simulation period  Our simulations also suggest that state and local governments’ capital outlays—which include spending on infrastructure, such as buildings, highways and streets, sewer systems, and water systems, as well as equipment and land— will grow more slowly than GDP if state and local governments continue to provide current levels of capital per resident  Our simulations suggest that federal grants overall will increase as a share of GDP, while Medicaid grants will likely grow more quickly than other types of federal grants (see figure 7)  Thus, Medicaid grants will likely make up an increasing share of revenues in the future  Since Medicaid is a matching formula grant program, the projected increase in federal Medicaid grants, therefore, reflects expected increased Medicaid expenditures that will be shared by state governments  Our simulations also suggest that federal investment grants (i e , grants intended to finance capital infrastructure investments) and other federal grants unrelated to Medicaid (i e , grants intended to finance education, social services, housing, and community investment) are likely to decline as a share of GDP  Further, our simulations suggest that if historical relationships between state and local governments’ tax revenues and tax bases persist, total tax revenues for the state and local government sector will increase from 8 8 percent of GDP in 2018 to 9 4 percent of GDP by the end of the simulation period  This increase is driven largely by the growth in personal income taxes, as shown in figure 8  Specifically, our simulations suggest that personal income tax revenues will increase as a share of GDP by about 1 percentage point during the simulation period  Sales taxes and property taxes, on the other hand, are projected to remain relatively constant as a share of GDP during the simulation period through 2067  While our long-term simulations do not account for pending or future federal policy changes that will result in changes to expenditures and revenues, an understanding of several recent federal policy changes related to taxes and health care are important to note because they present sources of uncertainty for the state and local government sector’s long-term fiscal outlook  In addition, as is the case in any model that is reliant on historical data to simulate a long-term outlook, other considerations, such as economic growth and rates of return on pension assets, could shift future fiscal outcomes  These policy changes and uncertainties are discussed below and may help federal policy makers and state and local governments consider how these changes could affect the long-term outlook  Recently enacted legislation, such as Public Law 115-97, commonly referred to by the President and administrative documents as the Tax Cuts and Jobs Act (TCJA), could affect the sector’s revenues over the long-term  Enacted in December 2017, TCJA included significant changes to corporate and individual tax law, with implications for state and local government tax collections  In particular, for individual taxpayers, for tax years 2018 through 2025, tax rates were lowered for nearly all income levels, some deductions from taxable income were changed (personal exemptions were eliminated, while the standard deduction was increased), and certain credits, such as the child tax credit, were expanded  The effect of TCJA on the long-term state and local fiscal outlook is still evolving, and will likely depend on how states incorporate the law’s changes into their state income tax rules  That is, because some states link their state income taxes to federal income tax rules, states must decide whether to let the changes from TCJA flow through to their state income tax systems, or establish new state income tax rules  For example, some states have adopted the federal definition of taxable income as a starting point for state tax calculations, while other states use the federal definition of adjusted gross income as a starting point  The choices states make to continue to link to these definitions could have long-term implications for their state tax revenues  In addition, under TCJA, the amount of the federal itemized deductions allowed for all state and local income, sales, and property taxes (commonly referred to as the state and local tax (SALT) deduction) is now capped at $10,000 for tax years 2018 to 2025  The magnitude or net effect of these changes is uncertain in that states are still working to understand the impact of the tax laws on their revenues  It remains to be seen whether and how states will see changes in their revenues in the future  Moreover, a recent U S  Supreme Court decision involving state sales taxes could have implications for states’ ability to collect revenue  Specifically, the court’s ruling in June 2018 in South Dakota v  Wayfair, Inc  held that states could require out-of-state sellers to collect and remit sales taxes on purchases made from those out-of-state sellers, even if the seller does not have a substantial physical presence in the taxing state  Prior to this ruling, a seller that did not have a substantial physical presence in a state could not be required to collect and remit a sales tax on goods sold into the state  Instead, a purchaser may have been required to pay a use tax (i e , a tax levied on the consumer for the privilege of use, ownership, or possession of taxable goods and services) in the same amount to his or her state government  In 2017, we reported that states could realize between an estimated $8 5 billion and $13 4 billion in additional state sales tax revenue across all states if all sellers were required to collect taxes on all remote sales at current rates  The extent to which states realize changes in sales tax revenue will likely depend on how they revise their state laws and enforcement efforts in response to this June 2018 ruling  Enacted health care legislation could also affect the long-term fiscal position of state and local governments  As we have reported in prior work, the effect of the Patient Protection and Affordable Care Act (PPACA) on the long-term state and local fiscal outlook could depend on how states implement PPACA, and on future rates of health care cost growth  For example, consider the states that have opted, under PPACA, to expand Medicaid program coverage to millions of lower income adults  While the federal government is expected to cover a large share of the costs of the Medicaid expansion, these states are ultimately expected to bear some of the costs  Specifically, the federal government reimbursed 100 percent of the costs of the expanded population beginning in 2014  This reimbursement rate will decline from the 2018 reimbursement rate of 94 percent to 90 percent by 2020  As such, the reduced federal reimbursement rate may affect those states that expanded their Medicaid populations in recent years  As discussed earlier in this report, our simulations suggest that Medicaid spending will make up an increasing share of the state and local government sector’s operating expenditures in the future  A weakening of the economy could add to the fiscal pressures states face in funding these Medicaid obligations  As our prior work has shown, past recessions in 2001 and 2007 hampered states’ ability to fund increased Medicaid enrollment and maintain their existing services  Specifically, Medicaid enrollment increased during these recessions, in part due to increased unemployment, which led more individuals to become eligible for the program  We have also reported on the use of Medicaid demonstrations, which allow states to test new approaches to coverage to improve quality and access, or generate savings or efficiencies  Specifically, CMS may waive certain Medicaid requirements and approve new types of expenditures that would not otherwise be eligible for federal Medicaid matching funds  For example, under demonstrations, states have extended coverage to certain populations, provided services not otherwise eligible for Medicaid, and made payments to providers to incentivize delivery system improvements  We previously reported that, as of November 2016, nearly three-quarters of states have CMS- approved demonstrations  In fiscal year 2015, federal spending under demonstrations represented a third of all Medicaid spending nationwide  We also reported that in 10 states, federal spending on demonstrations represented 75 percent or more of all federal spending on Medicaid  Joint financing of Medicaid is a fixture of this federal-state partnership  Demonstration waivers hold the potential for changing state Medicaid spending  However, as we have reported, these demonstrations are required, under HHS policy, to achieve budget neutrality and not raise costs for the federal government  In addition to federal tax- and health-related policy changes, a number of other factors could affect the state and local government sector’s long- term fiscal outlook  Specifically, we developed simulations using alternative assumptions of the growth of key model variables—which include economic growth, health care excess cost growth, and the rate of return on pension assets  We determined that changes in the growth projections of these key variables could affect the operating balance of state and local governments, thereby shifting future fiscal outcomes for the sector  Future trends in GDP growth could affect the state and local government sector’s fiscal outlook  Data from CBO and the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (OASDI Trustees) project real GDP to grow by 1 9 percent per year on average from 2018 through 2028, and by 2 1 percent per year on average after 2028, respectively  Using these projections, our simulations suggest that maintaining current policies would cause the sector’s expenditures to exceed its revenues and that the difference between revenues and expenditures would become increasingly negative during the next several decades  However, simulations we developed using the OASDI Trustees’ alternative projections of real GDP growth suggest that the difference between revenues and expenditures would expand before narrowing toward the end of the simulation period if real GDP were to grow at a faster rate—2 8 percent per year on average—as shown in figure 9  Our simulations also show that if GDP were to grow at a slower rate—1 5 percent per year on average—the difference between revenues and expenditures would expand  This would result in an increasingly negative operating balance during the simulation period  As discussed earlier in this report, excess cost growth in health care is another key determinant of the sector’s fiscal balance  Data from CBO project Medicaid spending per capita to grow about 1 5 percent faster than GDP per capita on average for the period from 2019 through 2028  Data from CMS project Medicaid spending per capita to grow about 0 6 percent faster on average for the period from 2029 through 2067  Data from CMS also project national health expenditures per capita to grow about 0 8 percent faster than GDP per capita for the period from 2018 through 2067  Using these projections, our simulations suggest that maintaining current policies will cause the sector’s expenditures to exceed its revenues, and that the difference between revenues and expenditures will become increasingly negative during the next several decades  However, simulations developed using alternative projections of excess cost growth in Medicaid and national health expenditures suggest that the difference between revenues and expenditures may be reduced but not eliminated within the simulation period if excess cost growth in health care is zero  In the scenario where excess cost growth rises faster—0 7 percent on average for Medicaid for the period from 2029 through 2067 and 1 percent for national health expenditures for the period from 2018 through 2067—our simulations show that the difference between revenues and expenditures will persist for the remainder of the simulation period (see figure 10)  The rate of return on pension assets could also affect the state and local government sector’s fiscal outlook  Based on an inflation-adjusted rate of return on pension assets of 5 percent, our simulations suggest that state and local governments will need to make pension contributions equivalent to about 12 9 percent of their wages and salaries to meet their long-term pension obligations  However, this estimate is sensitive to the rate of return on state and local governments’ pension assets  Simulations we developed using a higher rate of return—7 5 percent—suggest that pension contributions needed to meet pension obligations would be about 3 percent of state and local government employees’ wages and salaries  In addition, under this scenario, our simulations suggest that the difference between revenues and expenditures will be reduced, but not eliminated within the simulation period  Alternatively, we estimated that if the rate of return on pension assets is relatively low—at 2 5 percent— required pension contributions would need to be about 23 percent of state and local government employees’ wages and salaries during the simulation period  Under this scenario, our simulations show that the sector’s negative operating balance will continue to grow larger throughout the simulation period  It follows therefore, that high rates of return on pension assets are associated with an improved outlook for state and local governments, and vice versa (see figure 11)  This report was prepared under the direction of Michelle A  Sager, Director, Strategic Issues, who can be reached at (202) 512-6806 or sagerm@gao gov, and Oliver M  Richard, Director, Center for Economics, who can be reached at (202) 512-8424 or richardo@gao gov if there are any questions  GAO staff who made key contributions to this report are listed in appendix IV  To simulate measures of fiscal balance for the state and local government sector for the long term, we used aggregate data on the state and local government sector and national data on other variables from the following sources: Agency for Healthcare Research and Quality; Board of Governors of the Federal Reserve System; Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (OASDI Trustees); Bureau of Economic Analysis (BEA); Bureau of Labor Statistics; Centers for Medicare & Medicaid Services (CMS); Congressional Budget Office (CBO); and Federal Reserve Bank of St  Louis  Our approach generally follows the approach used in GAO-08-317 and in subsequent updates of that report  Specifically, we developed a model that projects the levels of receipts and expenditures of the state and local government sector (henceforth, the sector) in future years based on current and historical spending and revenue patterns  We use table 3 3 of the National Income and Product Accounts (NIPA)—State and Local Government Current Receipts and Expenditures—prepared by BEA at the U S  Department of Commerce as an organizing framework for developing our model of the sector’s revenues and expenditures (see table 1)  In this table, current revenues are grouped in five main categories  Current tax receipts  These receipts are tax payments made by persons or businesses to state and local governments  They include income taxes, general sales taxes, property taxes, and excise taxes  Current taxes also include fees for motor vehicle licenses, drivers’ licenses, and business licenses  Social insurance contributions  These contributions finance the provision of certain social benefits to qualified persons, and include contributions from employers and employees for temporary disability insurance, worker’s compensation insurance, and other programs  Income receipts from government assets  These receipts include interest, dividends, and rental income, such as royalties paid on drilling on the outer continental shelf  Also, state and local governments earn interest and dividend income on financial assets  Current transfer receipts  Transfer receipts are receipts for which state and local governments provide nothing of value in return  Current transfer receipts include federal grants, fines, fees, donations, and tobacco settlements  Also included are net insurance settlements, certain penalty taxes, court fees, and other miscellaneous transfers  Current surplus of government enterprises  This surplus is a profit- type measure for state and local government enterprises, such as water, sewer, gas, and electricity providers; toll providers; liquor stores; air and water terminals; public transit; and state lotteries  Some types of enterprises, such as state lotteries, consistently earn surpluses which are used to fund general government activities  In contrast, many enterprises run deficits, which, in turn, reduce receipts  State and local governments also receive income from the sale of goods and services, such as school tuition  In the NIPAs, this income is treated as an offset against expenditures, not revenue  This income comes from voluntary purchases that might have been made from a private sector provider of such services  In addition to current receipts, state and local governments receive capital transfer receipts  These receipts include estate and gift taxes, and federal government investment grants for capital such as highways, transit, air transportation, and water treatment plants  State and local government current expenditures are grouped into four main categories  Consumption expenditures  Generally, spending for which some value is provided in return  State and local government consumption spending is the sum of inputs used to provide goods and services, including compensation of general government employees, consumption of general government fixed capital (depreciation), and intermediate goods and services purchased, less sales to other sectors and own-account investment  Current transfer payments  Payments for which nothing of value is provided in return  For state and local governments, current transfer payments consist primarily of social benefits, which are payments to persons to provide for needs that arise from circumstances such as sickness, unemployment, retirement, and poverty  There are two kinds of social benefits—benefits from social insurance funds, such as temporary disability insurance and workers’ compensation, and other social benefits, such as medical benefits from Medicaid and the state Children’s Health Insurance Program (CHIP), family assistance from Temporary Assistance to Needy Families, education assistance, and other public assistance programs  While NIPA table 3 3 also includes other current transfer payments to the rest of the world as part of current transfer payments, these amounts are generally equal to zero  Interest payments  These include actual and imputed interest and represent the cost of borrowing by state and local governments to finance their capital and operational costs  Subsidies  State and local government subsidies are largely payments to railroads  State and local government spending also includes gross investment, capital transfer payments, and net purchases of nonproduced assets  Gross investment is spending on capital goods like structures, equipment, and intellectual property—items that are called fixed assets or capital because of their repeated or continuous use in providing government services for more than 1 year  Structures include residential and commercial buildings, highways and streets, sewer systems, and water systems  State and local government capital transfer payments include disaster-related insurance benefits paid to the U S  territories and the Commonwealths of Puerto Rico and Northern Mariana Islands  Net purchases of nonproduced assets are composed of net purchases of land less oil bonuses (payments to states for the long-term rights to extract oil)  Our main indicator of the sector’s fiscal balance is its operating balance net of funds for capital expenditures (henceforth, operating balance), which is a measure of the sector’s ability to cover its current expenditures out of current revenues  The operating balance is defined as total receipts minus (1) capital outlays not financed by medium- and long-term debt issuance, (2) total current expenditures less depreciation, (3) current surplus of state and local government enterprises, and (4) net social insurance fund balance  Alternative indicators of fiscal balance include net saving and net lending or borrowing  Net saving is the difference between current receipts and current expenditures  Since current expenditures exclude capital investment but include a depreciation measure, net saving can be thought of as a measure of the extent to which governments are covering their current operations from current receipts  Net lending or borrowing is the difference between total receipts and total expenditures, and is analogous to the federal unified surplus or deficit  Total receipts differ from current receipts because they include capital transfer receipts  Total expenditures differ from current expenditures because they include capital investment, capital transfer payments, and net purchases of nonproduced assets  However, they exclude fixed capital consumption  The former three categories are cash expenditures, while the latter is a noncash charge  Net lending or net borrowing represents the governments’ cash surplus or borrowing requirement  This measure is normally negative because governments borrow to finance their capital investment (and sometimes to finance current operations as well)  The following equations describe how we simulated state and local government receipts and expenditures, as well as the intermediate variables used in those simulations  For this update, we started with historical data for 2017, or the most recent year available, and then simulated each variable for each year from 2018 through 2092 (the simulation period)  To simulate state and local government receipts and expenditures, we use simulations of various national-level demographic, macroeconomic, and health care variables derived from projections produced by CBO, CMS, and the OASDI Trustees, and otherwise derived using our own assumptions (see table 2)  This approach is similar to the approach we have used in prior model updates  To simulate state and local government spending on defined benefit pensions, we first estimate the contribution rate (as a fraction of state and local government general government wages and salaries) that state and local governments would need to make each year going forward to ensure that their pension systems are fully funded on an ongoing basis  Our goal is to estimate the financial commitments to employees that have been and are likely to continue to be made by the state and local sector to better understand the full fiscal outlook for the sector  As such, our analysis projects the liabilities that the sector is likely to continue to incur in the future based on simulations of future numbers of retirees receiving pension benefits and their benefit amounts; future numbers of employees, their wages and salaries, and their pension contributions; and assets in state and local government defined benefit pension funds  Although we are only interested in applying contribution rates over the simulation time frame, we actually have to derive the contribution rate for a longer time frame in order to find the steady-state level of necessary contributions
Report 2:  Egypt's policy toward Libya also is closely aligned with other foreign backers of the LNA, including France and the United Arab Emirates (UAE)  Reportedly, the three countries are working in concert to strengthen the position of Haftar in order to facilitate the eventual reunification of the Libyan army  A 2019 LNA offensive into southern Libya has placed additional pressure on the Government of National Accord and may complicate U S -backed efforts by the United Nations to facilitate a national dialogue, constitutional referendum, and elections in 2019  To Egypt's south, the government is embroiled in regional disputes with Nile Basin countries, such as Ethiopia, which is nearing completion of the $4 2 billion Grand Ethiopian Renaissance Dam, a major hydroelectric project  Egypt argues that the dam, once filled, will limit the flow of the Nile River below Egypt's agreed share  However, many analysts expect that Egypt will address the dispute by increasing water-use efficiency and investing in desalination, rather than using its military to bomb the dam  Reduced Nile flow into Egypt may exacerbate existing water shortages and cause short-term political problems for the Egyptian government, which faces extensive domestic water needs  In February 2019, President Sisi assumed the one-year chairmanship of the African Union, during which he is expected to promote closer relations with fellow African states  Egypt and Russia, close allies in early years of the Cold War, have again strengthened bilateral ties under President Sisi, who has promised to restore Egyptian stability and international prestige  His relationship with Russian President Vladimir Putin has rekindled, in the words of one observer, "a romanticized memory of relations with Russia during the Nasser era " President Sisi first turned to Russia during the Obama Administration, when U S -Egyptian ties were strained, and Egypt seemed intent on signaling its displeasure with U S  policy  Since 2014, Egypt and Russia have improved ties in a number of ways, including through arms deals  Reportedly, Egypt is upgrading its aging fleet of legacy Soviet MiG-21 aircraft to a fourth generation MiG-29M variant with additional deliveries to Egypt in 2018 (first delivered in April 2017)  Egypt also has purchased 46 standard Ka-52 Russian attack helicopters for its air force  Egypt reportedly also has purchased the naval version of the Ka-52 for use on Egypt's two French-procured Mistral-class helicopter dock vessels (see below), and the S-300VM surface-to-air missile defense system from Russia  In August 2018, Egyptian Defense Minister Mohamed Zaki visited Russia, where he attended a Russian arms exhibition  Additionally, Egypt and Russia reportedly have expanded their cooperation on nuclear energy  In 2015, Egypt reached a deal with Russian state energy firm Rosatom to construct a 4,800-megawatt nuclear power plant in the Egyptian Mediterranean coastal town of Daba'a, 80 miles northwest of Cairo  Russia is lending Egypt $25 billion over 35 years to finance the construction and operation of the nuclear power plant (this will cover 85% of the project's total costs)  The contract also commits Russia to supply the plant's nuclear fuel for 60 years and transfer and store depleted nuclear fuel from the reactors  As Egyptian and Russian foreign policies have become more closely aligned in conflict zones such as eastern Libya, bilateral military cooperation has expanded  One report suggests that Russian Special Forces based out of an airbase in Egypt's western desert (Sidi Barrani) may be aiding General Haftar  In November 2017, Egypt and Russia signed a draft agreement governing the use of each other's air space  While Egyptian-Russian ties have grown warmer in recent years, they are not without complications  In the aftermath of an October 2015 terrorist attack against a Russian passenger jet departing from Sharm El Sheikh, visits to Egypt by Russian tourists, previously the country's largest source of tourists, dropped significantly  Russian commercial aircraft have resumed direct flights to Cairo but not to Sharm El Sheikh  Egypt and Russia also engaged in a trade dispute in 2016 over Russian wheat imports  Egypt is the largest global importer of wheat, and the largest export market for Russian wheat  Aside from Russia, France stands out as a non-U S  country with which President Sisi has sought to build a diplomatic and military procurement relationship  In the last five years, as French-Egyptian ties have improved, Egypt has purchased major air and naval defense systems from French defense contractors, including the following: Four Gowind Corvettes (produced by Naval Group)—This deal was signed in July 2014  As part of the French-Egyptian arrangement, some of the Corvette construction has taken place at the Alexandria Shipyard in Egypt  One FREMM multi-mission Frigate (produced by Naval Group)—Named the Tahya Misr (Long Live Egypt), this vessel was delivered to Egypt in 2015  This ship has participated in an annual joint French-Egyptian naval exercise, known as Cleopatra  In February 2015, Egypt purchased 24 Rafale multirole fighters (produced by Dassault Aviation)  Under the initial agreement, Egypt and France may enter into a new procurement agreement for 12 additional Rafale fighters  According to the manufacturer, the Rafale has flown in combat in Afghanistan, Libya, Mali, Iraq, and Syria and is used by Egypt, Qatar, and India  In 2018, French officials said that the United States would not permit France to export the SCALP air-launched land-attack cruise missile used on the Rafale to Egypt under the International Trade in Arms Regulation (ITAR) agreement  The United States may have been concerned over the transfer of sensitive technology to Egypt  Two Mistral-class Helicopter Carriers (produced by Naval Group)—In the fall of 2015, France announced that it would sell Egypt two Mistral-class Landing Helicopter Dock (LHD) vessels (each carrier can carry 16 helicopters, 4 landing craft, and 13 tanks) for $1 billion  The LHDs (ENS Anwar El Sadat and ENS Gamal Abdel Nasser ) were delivered in 2016  In 2017, Egypt announced that it would purchase Russian 46 Ka-52 Alligator helicopters, which can operate on the LHDs  In January 2019, French President Emmanuel Macron paid a three-day visit to Egypt, where he raised human rights issues in public and with Egyptian authorities and civil society representatives  According to Macron, "I can't see how you can pretend to ensure long-term stability in this country, which was at the heart of the Arab Spring and showed its taste for freedom, and think you can continue to harden beyond what's acceptable or justified for security reasons " President Trump has praised the Egyptian government's counterterrorism efforts while his Administration has worked to restore high-level diplomatic engagement, joint military exercises, and arms sales  Many commentators initially expected President Trump to bring the United States and Egypt closer together, and that largely has been the case  The Administration has withheld some foreign assistance for policy reasons on at least one occasion, however, and the United States has not had an ambassador in Cairo since June 30, 2017  As evidence of improved bilateral ties, the U S  Defense Department notified Congress in November 2018 of a major $1 billion sale of defense equipment to Egypt, consisting of 10 AH-64E Apache Attack Helicopters, among other things  The Egyptian Air Force already possesses 45 less advanced versions of the Apache that were acquired between 2000 and 2014  In January 2019, U S  Secretary of State Michael Pompeo delivered a major policy speech at the American University in Cairo, where he stated: "And as we seek an even stronger partnership with Egypt, we encourage President Sisi to unleash the creative energy of Egypt's people, unfetter the economy, and promote a free and open exchange of ideas  The progress made to date can continue " U S  officials have not yet publicly criticized efforts by supporters of President Sisi to advance amendments to the constitution (see above) to extend the possibility of Sisi's continued presidency  Human rights advocates have called for Western governments to withhold assistance to Egypt if the amendments are approved  According to Human Rights Watch , "Al-Sisi's government is encouraged by the continued silence of its allies, and if the US, UK, and France want to avoid the destabilizing consequences of entrenching authoritarian rule in Egypt, they should act now " On February 22, 2019, a bipartisan group of national security experts called on U S  officials to "express strong concern about the amendments to the Egyptian constitution now moving through a rapid approval process " Egypt's poor record on human rights and democratization has sparked regular criticism from U S  officials and some Members of Congress  Since FY2012, Members have passed appropriations legislation that withholds the obligation of FMF to Egypt until the Secretary of State certifies that Egypt is taking various steps toward supporting democracy and human rights  With the exception of FY2014, lawmakers have included a national security waiver to allow the Administration to waive these congressionally mandated certification requirements under certain conditions  Over the last year, the Administration has obligated several tranches of FMF to Egypt, including the following: In September 2018, the Administration obligated $1 billion in FY2018 FMF  Per Section 7041(a)(3)(A) of P L  115-141 , the Consolidated Appropriations Act, FY2018, $300 million in FMF remains withheld from obligation until the Secretary of State certifies that Egypt is taking various steps toward supporting democracy and human rights  In previous acts, the amount withheld had been $195 million  FY2018 FMF for Egypt remains available to be expended until September 30, 2019  In August 2018, the Administration waived the certification requirement in Section 7041(a)(3)(B) of P L  115-31 , the Consolidated Appropriations Act, FY2017, allowing for the obligation of $195 million in FY2017 FMF, which occurred in September 2018  However, according to one report, Senator Patrick Leahy has placed a hold on $105 million in FY2017 FMF and is seeking more information on the plight of detained Egyptian-American Moustafa Kassem  In January 2018, the Administration notified Congress of its intent to obligate $1 039 billion in FY2017 FMF out of a total of $1 3 billion appropriated for FY2017  It chose not to obligate $65 7 million in FY2017 FMF  The remaining $195 million had been withheld until a national security waiver was issued in August 2018 (see above)  For FY2019, the President requested a total of $1 381 billion in foreign assistance for Egypt, the same amount requested for the previous year  Nearly all of the requested funds for Egypt are for the FMF account  For FY2020, the request is nearly identical from previous years, as the President is seeking a total of $1 382 billion in bilateral assistance for Egypt  The FY2019 Omnibus ( P L  116-6 ) provides the following for Egypt: a total of $1 419 billion in bilateral U S  foreign assistance for Egypt, of which $1 3 billion is in FMF, $112 5 million in ESF, $3 million in NADR, $2 million in INCLE, and $1 8 million in IMET; and a reauthorization of ESF to support future loan guarantees to Egypt; P L  116-6 sets the following conditions for Egypt: As in previous years, it requires that funds may only be made available when the Secretary of State certifies that the government of Egypt is sustaining the strategic relationship with the United States and meeting its obligations under the 1979 Egypt-Israel Peace Treaty  As in previous years, the act withholds ESF that "the Secretary determines to be equivalent to that expended by the United States Government for bail, and by nongovernmental organizations for legal and court fees, associated with democracy-related trials in Egypt until the Secretary certifies and reports to the Committees on Appropriations that the Government of Egypt has dismissed the convictions issued by the Cairo Criminal Court on June 4, 2013, in Public Prosecution Case No  1110 for the Year 2012 and has not subjected the defendants to further prosecution or if convicted they have been granted full pardons  " This last condition (bolded) was added in 2019 to account for the acquittal of the 43 foreign defendants in Case 173 (see above)  As in previous years, the FY2019 Omnibus also includes a limitation on ESF, stating that no FY2018 ESF or prior-year ESF "may be made available for a contribution, voluntary or otherwise, to the Civil Associations and Foundations Support Fund, or any similar fund, established pursuant to Law 70 on Associations and Other Foundations Working in the Field of Civil Work [informally known as the NGO law] " As in previous years, the act also includes a provision that withholds $300 million of FMF funds until the Secretary of State certifies that the Government of Egypt is taking effective steps to advance, among other things, democracy and human rights in Egypt  The Secretary of State may waive this certification requirement, though any waiver must be accompanied by, among other things, an assessment of the Government of Egypt's compliance with United Nations Security Council Resolution 2270 and other such resolutions regarding North Korea  There has been some concern in the Administration and Congress over Egypt's alleged weapons procurement from North Korea in recent years  P L  115-245 , the Department of Defense (DOD) and Labor, Health and Human Services, and Education Appropriations Act, 2019 and Continuing Appropriations Act, 2019, specifies that the Secretary of Defense may provide Egypt with funds from the Counter-ISIS Train and Equip Fund (CTEF) to enhance its border security  To date, Egypt has not received security assistance from DOD-managed accounts  Between 1946 and 2016, the United States provided Egypt with $78 3 billion in bilateral foreign aid (calculated in historical dollars—not adjusted for inflation)  The 1979 Peace Treaty between Israel and Egypt ushered in the current era of U S  financial support for peace between Israel and its Arab neighbors  In two separate memoranda accompanying the treaty, the United States outlined commitments to Israel and Egypt, respectively  In its letter to Israel, the Carter Administration pledged to "endeavor to take into account and will endeavor to be responsive to military and economic assistance requirements of Israel " In his letter to Egypt, former U S  Secretary of Defense Harold Brown wrote the following: In the context of the peace treaty between Egypt and Israel, the United States is prepared to enter into an expanded security relationship with Egypt with regard to the sales of military equipment and services and the financing of, at least a portion of those sales, subject to such Congressional review and approvals as may be required  All U S  foreign aid to Egypt (or any foreign recipient) is appropriated and authorized by Congress   The 1979 Egypt-Israel Peace Treaty is a bilateral peace agreement between Egypt and Israel, and the United States is not a legal party to the treaty  The treaty itself does not include any U S  aid obligations, and any assistance commitments to Israel and Egypt that could be potentially construed in conjunction with the treaty were through ancillary documents or other communications and were—by their terms—subject to congressional approval (see above)  However, as the peace broker between Israel and Egypt, the United States has traditionally provided foreign aid to both countries to ensure a regional balance of power and sustain security cooperation with both countries  In some cases, an Administration may sign a bilateral "Memorandum of Understanding" (MOU) with a foreign country pledging a specific amount of foreign aid to be provided over a selected time period subject to the approval of Congress  In the Middle East, the United States has signed foreign assistance MOUs with Israel and Jordan  Currently, there is no U S -Egyptian MOU specifying a specific amount of total U S  aid pledged to Egypt over a certain time period  Congress typically specifies a precise allocation of most foreign assistance for Egypt in the foreign operations appropriations bill  Egypt receives the bulk of foreign aid funds from three primary accounts: Foreign Military Financing (FMF), Economic Support Funds (ESF), and International Military Education and Training (IMET)  The United States offers IMET training to Egyptian officers in order to facilitate U S -Egyptian military cooperation over the long term  Since the 1979 Israeli-Egyptian Peace Treaty, the United States has provided Egypt with large amounts of military assistance  U S  policymakers have routinely justified this aid to Egypt as an investment in regional stability, built primarily on long-running military cooperation and sustaining the treaty—principles that are supposed to be mutually reinforcing  Egypt has used U S  military aid through the FMF to (among other things) purchase major U S  defense systems, such as the F-16 fighter aircraft, the M1A1 Abrams battle tank, and the AH-64 Apache attack helicopter  For decades, FMF grants have supported Egypt's purchases of large-scale conventional military equipment from U S  suppliers  However, as mentioned above, the Obama Administration announced that future FMF grants may only be used to purchase equipment specifically for "counterterrorism, border security, Sinai security, and maritime security" (and for sustainment of weapons systems already in Egypt's arsenal)  It is not yet clear how the Trump Administration will determine which U S -supplied military equipment would help the Egyptian military counter terrorism and secure its land and maritime borders  Overall, some defense experts continue to view the Egyptian military as inadequately prepared, both doctrinally and tactically, to face the threat posed by terrorist/insurgent groups such as Sinai Province  According to a former U S  National Security Council official, "they [the Egyptian military] understand they have got a problem in Sinai, but they have been unprepared to invest in the capabilities to deal with it " To reorient the military toward unconventional warfare, the Egyptian military needs, according to one assessment, "heavy investment into rapid reaction forces equipped with sophisticated infantry weapons, optics and communication gear     backed by enhanced intelligence, surveillance and reconnaissance platforms  In order to transport them, Egypt would also need numerous modern aviation assets " In addition to substantial amounts of annual U S  military assistance, Egypt has benefited from certain aid provisions that have been available to only a few other countries  For example Early Disbursal and Interest - Bearing Account : Between FY2001 and FY2011, Congress granted Egypt early disbursement of FMF funds (within 30 days of the enactment of appropriations legislation) to an interest-bearing account at the Federal Reserve Bank of New York  Interest accrued from the rapid disbursement of aid has allowed Egypt to receive additional funding for the purchase of U S -origin equipment  In FY2012, Congress began to condition the obligation of FMF, requiring the Administration to certify certain conditions had been met before releasing FMF funds, thereby eliminating their automatic early disbursal  However, Congress has permitted Egypt to continue to earn interest on FMF funds already deposited in the Federal Reserve Bank of New York  The Excess Defense Articles (EDA) program provides one means by which the United States can advance foreign policy objectives—assisting friendly and allied nations through provision of equipment in excess of the requirements of its own defense forces  The Defense Security Cooperation Agency (DSCA) manages the EDA program, which enables the United States to reduce its inventory of outdated equipment by providing friendly countries with necessary supplies at either reduced rates or no charge  As a designated "major non-NATO ally," Egypt is eligible to receive EDA under Section 516 of the Foreign Assistance Act and Section 23(a) of the Arms Export Control Act  Over the past two decades, U S  economic aid to Egypt has been reduced by over 90%, from $833 million in FY1998 to a request of $75 million for FY2019  Beginning in the mid to late 1990s, as Egypt moved from an impoverished country to a lower-middle-income economy, the United States and Egypt began to rethink the assistance relationship, emphasizing "trade not aid " Congress began to scale back economic aid both to Egypt and Israel due to a 10-year agreement reached between the United States and Israel in the late 1990s known as the "Glide Path Agreement," which gradually reduced U S  economic aid to Egypt to $400 million by 2008  U S  economic aid to Egypt stood at $200 million per year by the end of the George W  Bush Administration, whose relations with then-President Hosni Mubarak suffered over the latter's reaction to the Administration's democracy agenda in the Arab world  During the final years of the Obama Administration, distrust of U S  democracy promotion assistance led the Egyptian government to obstruct many U S -funded economic assistance programs  According to the Government Accountability Office (GAO), the Department of State and the U S  Agency for International Development (USAID) reported hundreds of millions of dollars ($460 million as of 2015) in unobligated prior year ESF funding  As these unobligated balances grew, it created pressure on the Obama Administration to reobligate ESF funds for other purposes  In 2016, the Obama Administration notified Congress that it was reprogramming $108 million of ESF that had been appropriated for Egypt in FY2015 but remained unobligated for other purposes  The Administration claimed that its actions were due to "continued government of Egypt process delays that have impeded the effective implementation of several programs " In 2017, the Trump Administration also reprogrammed FY2016 ESF for Egypt  U S  economic aid to Egypt is divided into two components: (1) USAID-managed programs (public health, education, economic development, democracy and governance); and (2) the U S -Egyptian Enterprise Fund  Both are funded primarily through the Economic Support Fund (ESF) appropriations account  

ground_truth: The daily order of business on the floor of the House of Representatives is governed by standing rules that make certain matters and actions privileged for consideration. On a day-to-day basis, however, the House can also decide to grant individual bills privileged access to the floor, using one of several parliamentary mechanisms. The standing rules of the House include several different parliamentary mechanisms that the body may use to act on bills and resolutions. Which of these will be employed in a given instance usually depends on the extent to which Members want to debate and amend the legislation. In general, all of the procedures of the House permit a majority of Members to work their will without excessive delay. The House considers most legislation by motions to suspend the rules, with limited debate and no floor amendments, with the support of at least two-thirds of the Members voting. Occasionally, the House will choose to consider a measure on the floor by the unanimous consent of Members. The Rules Committee is instrumental in recommending procedures for considering major bills and may propose restrictions on the floor amendments that Members can offer or bar them altogether. Many major bills are first considered in Committee of the Whole before being passed by a simple majority vote of the House. The Committee of the Whole is governed by more flexible procedures than the basic rules of the House, under which a majority can vote to pass a bill after only one hour of debate and with no floor amendments. Although a quorum is supposed to be present on the floor when the House is conducting business, the House assumes a quorum is present unless a quorum call or electronically recorded vote demonstrates that it is not. However, the standing rules preclude quorum calls at most times other than when the House is voting. Questions are first decided by voice vote, although any Member may then demand a division vote. Before the final result of a voice or division vote is announced, Members can secure an electronically recorded vote instead if enough Members desire it or if a quorum is not present in the House. The constitutional requirements for making law mean that each chamber must pass the same measure with the identical text before transmitting it to the President for his consideration. When the second chamber of Congress amends a measure sent to it by the first chamber, the two chambers must resolve legislative differences to meet this requirement. This can be accomplished by shuttling the bill back and forth between the House and Senate, with each chamber proposing amendments to the position of the other, or by establishing a conference committee to try to negotiate a compromise version of the legislation.

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



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

Report 1: A complicated body of rules, precedents, and practices governs the legislative process on the floor of the House of Representatives  The official manual of House rules is more than 1,000 pages long and is supplemented by 30 volumes of precedents, with more volumes to be published in coming years  Yet there are two reasons why gaining a fundamental understanding of the House's legislative procedures is not as difficult as the sheer number and size of these documents might suggest  First, the ways in which the House applies its rules are largely predictable, at least in comparison with the Senate  Some rules are certainly more complex and more difficult to interpret than others, but the House tends to follow similar procedures under similar circumstances  Even the ways in which the House frequently waives, supplants, or supplements its standing rules with special, temporary procedures generally fall into a limited number of recognizable patterns  Second, underlying most of the rules that Representatives may invoke and the procedures the House may follow is a fundamentally important premise—that a majority of Members should ultimately be able to work their will on the floor  Although House rules generally recognize the importance of permitting any minority—partisan or bipartisan—to present its views and sometimes propose its alternatives, the rules do not enable that minority to filibuster or use other parliamentary devices to prevent the majority from prevailing without undue delay  This principle provides an underlying coherence to the various specific procedures discussed in this report  Article I of the Constitution imposes a few restrictions on House (and Senate) procedures—for example, requirements affecting quorums and roll-call votes—but otherwise the Constitution authorizes each house of Congress to determine for itself the "Rules of its Proceedings" (Article 1, Section 5)  This liberal grant of authority has several important implications  First, the House can amend its rules unilaterally; it need not consult with either the Senate or the President  Second, the House is free to suspend, waive, or ignore its rules whenever it chooses to do so  By and large, the Speaker or whatever Representative is presiding usually does not enforce the rules at his or her own initiative  Instead, Members must protect their own rights by affirmatively making points of order whenever they believe the rules are about to be violated  In addition, House rules include several formal procedures for waiving or suspending certain other rules, and almost any rule can be waived by unanimous consent  Thus, the requirements and restrictions discussed in this report generally apply only if the House chooses to enforce them  If for no other reason than the size of its membership, the House has found it necessary to limit the opportunities for each Representative to participate in floor deliberations  Whenever a Member is recognized to speak on the floor, there is always a time limit on his or her right to debate  The rules of the House never permit a Representative to hold the floor for more than one hour  Under some parliamentary circumstances, there are more stringent limits, with Members being allowed to speak for no more than 5 minutes, 20 minutes, or 30 minutes  Furthermore, House rules sometimes impose a limit on how long the entire membership of the House may debate a motion or measure  Most bills and resolutions, for instance, are considered under a set of procedures called "suspension of the rules" (discussed later in this report) that limits all debate on a measure to a maximum of 40 minutes  Under other conditions, when there is no such time limit imposed by the rules, the House (and to some extent, the Committee of the Whole as well) can impose one by simple majority vote  These debate limitations and debate-limiting devices generally prevent a minority of the House from thwarting the will of the majority  House rules also limit debate in other important respects  First, all debate on the floor must be germane to whatever legislative business the House is conducting  Representatives may speak on other subjects only in one-minute speeches most often made at the beginning of each day's session, special order speeches occurring after the House has completed its legislative business for the day, and during morning hour debates that are scheduled on certain days of the week  Second, all debate on the floor must be consistent with certain rules of courtesy and decorum  For example, a Member should not question or criticize the motives of a colleague  When a House committee reports a public bill or resolution that had been referred to it, the measure is placed on the House Calendar or the Union Calendar  In general, tax, authorization, and appropriations bills are placed on the Union Calendar; all others go to the House Calendar  In effect, the calendars are catalogues of measures that have been approved, with or without proposed amendments, by one or more House committees and are now available for consideration on the floor  Placement on a calendar does not guarantee that a measure will receive floor consideration at a specified time or at all  Because it would be impractical or undesirable for the House to take up measures in the chronological order in which they are reported and placed on one of the calendars, there must be some procedures for deciding the order in which measures are to be brought from the calendars to the House floor—in other words, procedures for determining the order of business  Clause 1 of Rule XIV lists the daily order of business on the floor, beginning with the opening prayer, the approval of the Journal (the official record of House proceedings required by the Constitution), and the Pledge of Allegiance  Apart from these routine matters, however, the House never follows the order of business laid out in this rule  Instead, certain measures and actions are privileged, meaning they may interrupt the regular order of business  In practice, all the legislative business that the House conducts comes to the floor by interrupting the order of business under Rule XIV, either by unanimous consent or under the provisions of another House rule  Every bill and resolution that cannot be considered by unanimous consent must become privileged business if it is going to reach the floor at all  There is no one single set of procedures that the House always follows when it considers a public bill or resolution on the floor  Instead, there are several modes of consideration, or different sets of procedural rules, that the House uses  In some cases, House rules require that certain kinds of bills be considered in certain ways  By various means, however, the House chooses to use whichever mode of consideration is most appropriate for a given bill  Which of these modes the House uses depends on such factors as the importance and potential cost of the bill and the amount of controversy the bill has generated among Members  The differences among these sets of procedures rest largely on the balance that each strikes between the opportunities for Members to debate and propose amendments, on the one hand, and the ability of the House to act promptly, on the other  Regardless of which procedure the House uses to consider legislation, the House majority party leadership generally tries to post the text of measures coming to the chamber floor in advance on an internet website created for that purpose  The House most frequently resorts to a set of procedures that enables it to act quickly on bills that enjoy overwhelming but not unanimous support  Although this set is called "suspension of the rules," clause 1 of Rule XV provides for these procedures as an alternative to the other modes of consideration  The essential components of suspension of the rules are (1) a 40-minute limit on debate, (2) a prohibition against floor amendments, and (3) a two-thirds vote of those present and voting for passage  On every Monday, Tuesday, and Wednesday—and at other times by special arrangement—the Speaker may recognize Members to move to suspend the rules and pass a particular bill (or take some other action, such as agreeing to the Senate's amendments to a House bill)  Once such a motion is made, the motion and the bill itself together are debatable for a maximum of 40 minutes  Half of the time is controlled by the Representative making the motion, often the chair of the committee with jurisdiction over the bill; the other half is usually controlled by the ranking minority member of the committee (or sometimes the subcommittee) of jurisdiction, especially when he or she opposes the motion  The suspension motion itself may propose to pass the bill with certain amendments, but no Member may propose an amendment from the floor  During the debate, the two Members who control the time yield parts of it to other Members who wish to speak  Once the 40 minutes is either used or yielded back, a single vote occurs on suspending the rules and simultaneously passing the bill  If two-thirds of the Members present vote "Aye," the motion is agreed to and the bill is passed  If the motion fails, the House may debate the bill again at another time, perhaps under another mode of consideration that permits floor amendments and more debate and requires only a simple majority vote for passage  The House frequently considers several suspension motions on the same day, which could result in a series of electronically recorded votes taking place at 40-minute intervals if such votes are requested  For the convenience of the House, therefore, clause 8 of Rule XX permits the Speaker to postpone electronic votes that Members have demanded on motions to suspend the rules until a later time on the same day or the following day  When the votes do take place, they are clustered together, occurring one after the other without intervening debate  One of the ironies of the legislative process on the House floor is that the House does relatively little business under the basic rules of the House  Instead, most of the debate and votes on amendments to major bills occur in Committee of the Whole (discussed below)  This is largely because of the rule that generally governs debate in the House itself  The rule controlling debate during meetings of the House (as opposed to meetings of the Committee of the Whole) is clause 2 of Rule XVII, which states in part that a "Member, Delegate, or Resident Commissioner may not occupy more than one hour in debate on a question in the House " In theory, this rule permits each Representative to speak for as much as an hour on each bill, on each amendment to each bill, and on each of the countless debatable motions that Members could offer  Thus, there could be more than four hundred hours of debate on each such question, a situation that would make it virtually impossible for the House to function effectively  In practice, however, this "hour rule" usually means that each measure considered "in the House" is debated by all Members for no more than a total of only one hour before the House votes on passing it  The reason for this dramatic difference between the rule in theory and the rule in practice lies in the consequences of a parliamentary motion to order what is called the "previous question " When a bill or resolution is called up for consideration in the House—and, therefore, under the hour rule—the Speaker recognizes the majority floor manager to control the first hour of debate  The majority floor manager is usually the chair of the committee or subcommittee with jurisdiction over the measure and most often supports its passage without amendment  This Member will yield part of his or her time to other Members and may allocate control of half of the hour to the minority floor manager (usually the ranking minority member of the committee or subcommittee)  However, the majority floor manager almost always yields to other Representatives "for purposes of debate only " Thus, no other Member may propose an amendment or make any motion during that hour  During the first hour of debate, or at its conclusion, the majority floor manager invariably "moves the previous question " This nondebatable motion asks the House if it is ready to vote on passing the bill  If a majority votes for the motion, no more debate on the bill is in order, nor can any amendments to it be offered; after disposing of the motion, the House usually votes immediately on whether to pass the bill  If the House defeats the previous question, however, opponents of the bill would then be recognized to control the second hour of debate, and might use that time to try to amend the measure  Because of this, it is unusual for the House not to vote for the previous question—the House disposes of most measures considered in the House, under the hour rule, after no more than one hour of debate and with no opportunity for amendment from the floor  These are not very flexible and accommodating procedural ground rules for the House to follow in considering most legislation  Debate on a bill is usually limited to one hour, and only one or two Members control this time  Before an amendment to the bill can even be considered, the House must first vote against a motion to order the previous question  For these reasons, most major bills are not considered in the House under the hour rule  In current practice, the most common type of legislation considered under the hour rule in the House are procedural resolutions reported by the House Committee on Rules that are commonly referred to as "special rules" (discussed below)  Much of the legislative process on the floor occurs not "in the House" but in a committee of the House known as the Committee of the Whole (formally, the Committee of the Whole House on the State of the Union)  Every Representative is a member of the Committee of the Whole, and it is in this committee, meeting in the House chamber, that many major bills are debated and amended before being passed or defeated by the House itself  Most bills are first referred to, considered in, and reported by a standing legislative committee of the House before coming to the floor  In much the same way, once bills do reach the floor, many of them then are referred to a second committee, the Committee of the Whole, for further debate and for the consideration of amendments  The Speaker presides over meetings of the House but not over meetings of the Committee of the Whole  Instead, the Speaker appoints another Member of the majority party to serve as the chair of the Committee of the Whole during the time the committee is considering a particular bill or resolution  In addition, the rules that apply in Committee of the Whole are somewhat different from those that govern meetings of the House itself  The major differences are discussed in the following sections of this report  In general, the combined effect of these differences is to make the procedures in Committee of the Whole—especially the procedures for offering and debating amendments—considerably more flexible than those of the House  Clause 3 of Rule XVIII requires that most bills affecting federal taxes and spending be considered in Committee of the Whole before the House votes on passing them  Most other major bills are also considered in this way  Most commonly, the House adopts a resolution, reported by the Rules Committee, that authorizes the Speaker to declare the House "resolved" into Committee of the Whole to consider a particular bill  There are two distinct stages to consideration in Committee of the Whole  First, there is a period for general debate, which is routinely limited to an hour  Each of the floor managers usually controls half the time, yielding parts of it to other Members who want to participate in the debate  During general debate, the two floor managers and other Members discuss the bill, the conditions prompting the committee to recommend it, and the merits of its provisions  Members may describe and explain the reasons for the amendments that they intend to offer, but no amendments can actually be proposed at this time  During or after general debate, the majority floor manager may move that the committee "rise"—in other words, that the committee transform itself back into the House  When the House agrees to this motion, it may resolve into Committee of the Whole again at another time to resume consideration of the bill  Alternatively, the Committee of the Whole may proceed immediately from general debate to the next stage of consideration: the amending process  The Committee of the Whole may consider a bill for amendment section by section or, in the case of appropriations measures, paragraph by paragraph  Amendments to each section or of the bill are in order after the part they would amend has been read or designated and before the next section is read or designated  Alternatively, the bill may be open to amendment at any point, usually by unanimous consent  The first amendments considered to each part of the bill are those (if any) recommended by the committee that reported it  Thereafter, members of the committee are usually recognized before other Representatives to offer their own amendments  All amendments must be germane to the text they would amend  Germaneness is a subject matter standard more stringent than one of relevancy and reflects a complex set of criteria that have developed by precedent over the years  The Committee of the Whole votes only on amendments; it does not vote directly on the bill as a whole  And like the standing committees of the House, the Committee of the Whole does not actually amend the bill; it only votes to recommend amendments to the House  The motion to order the previous question may not be made in Committee of the Whole, so, under a purely open amendment process, Members may offer whatever germane amendments they wish  After voting on the last amendment to the last portion of the bill, the committee rises and reports the bill back to the House with whatever amendments it has agreed to  Purely open amendment processes have been rare in recent Congresses; the amendment process is far more frequently structured by the terms of a special rule reported by the Rules Committee and adopted by the House  This process is discussed in the next section of this report  An amendment to a bill is a first-degree amendment  After such an amendment is offered, but before the committee votes on it, another Member may offer a perfecting amendment to make some change in the first degree amendment  In current floor practice, this is rare  A perfecting amendment to a first-degree amendment is a second-degree amendment  After debate, the committee first votes on the second-degree perfecting amendment and then on the first-degree amendment as it may have been amended  Clause 6 of Rule XVI also provides that a Member may offer a substitute for the first-degree amendment before or after a perfecting amendment is offered, and this substitute may also be amended  Although a full discussion of these possibilities is beyond the scope of this report, it is important to note that the amending process can become complicated, with Members proposing several competing policy choices before the Committee of the Whole votes on any of them  Debate on amendments in Committee of the Whole is governed by the five-minute rule, not the hour rule that regulates debate in the House  The Member offering each amendment (or the majority floor manager, in the case of a committee amendment) is first recognized to speak for five minutes  Then a Member opposed to the amendment may claim five minutes for debate  Other Members may also speak for five minutes each by offering a motion "to strike the last word " Technically, this motion is an amendment that proposes to strike out the last word of the amendment being debated  But it is a "pro forma amendment" that is offered merely to secure time for debate and so is not voted on when the five minutes expire  In this way, each Representative may speak for five minutes on each amendment  However, a majority of the Members can vote (or agree by unanimous consent) to end the debate on an amendment immediately or at some specified time  Also, as mentioned, if the amendment process is governed by a special rule reported by the Rules Committee and adopted by the House, that resolution will limit the number, order, and form of amendments that can be considered  When the committee finally rises and reports the bill back to the House, the House proceeds to vote on the amendments the committee has adopted  It usually approves all these amendments by one voice vote, though Members can demand separate votes on any or all of them as a matter of right  After a formal and routine stage called "third reading and engrossment" (when only the title of the bill is read), there is then an opportunity for a Member, virtually always from the minority party, to offer a motion to recommit the bill to committee  If the House agrees to a "simple" or "straight" motion to recommit, which only proposes to return the bill to committee, the bill is taken from the floor and returned to committee  Although the committee technically has the power to re-report the bill, in practice, the adoption of a straight motion to recommit is often characterized as effectively "killing" the measure  "Straight" motions to recommit are rare  Alternatively, motions to recommit far more frequently include instructions that the committee report the bill back to the House "forthwith" with an amendment that is stated in the motion  If the House agrees to such a motion, which is debatable for 10 minutes, evenly divided, it then immediately votes on the amendment itself, so a motion to recommit with instructions is really a final opportunity for the minority party to amend the bill before the House votes on whether to pass it  Thus, this complicated mode of consideration, which the House uses to consider most major bills, begins in the House with a decision to resolve into Committee of the Whole to consider a particular bill  General debate and the amending process take place in Committee of the Whole, but ultimately it is the House that formally amends and then passes or rejects the bill  Clause 1(m) of Rule X authorizes the Rules Committee to report resolutions affecting the order of business  Such a resolution—called a "rule" or "special rule"—usually proposes to make a bill in order for floor consideration so that it can be debated, amended, and passed or defeated by a simple majority vote  In effect, each special rule recommends to the House that it take from the Union or House Calendar a measure that is not otherwise privileged business and bring it to the floor out of its order on that calendar  Typically, such a resolution begins by providing that, at any time after its adoption, the Speaker may declare the House resolved into Committee of the Whole for the consideration of that bill  Because the special rule is itself privileged, under clause 5(a) of Rule XIII, the House can debate and vote on it promptly  If the House accepts the Rules Committee's recommendation, it proceeds to consider the bill itself  One fundamental purpose of most special rules, therefore, is to make another bill or resolution privileged so that it may interrupt the regular order of business  Their other fundamental purpose is to set special procedural ground rules for considering that measure; these ground rules may either supplement or supplant the standing rules of the House  For example, the special rule typically sets the length of time for general debate in Committee of the Whole and specifies which Members are to control that time  In addition, the special rule normally includes provisions that expedite final House action on the bill after the amending process in Committee of the Whole has been completed  Special rules may also waive points of order that Members could otherwise make against consideration of the bill, against one of its provisions, or against an amendment to be offered to it  The most controversial provisions of special rules affect the amendments that Members can offer to the bill that the resolution makes in order  As noted above, an "open rule" permits Representatives to propose any amendment that meets the normal requirements of House rules and precedents—for example, the requirement that each amendment must be germane  A "modified open rule" permits amendments to be offered that otherwise comply with House rules but imposes a time limit on the consideration of amendments or requires them to be preprinted in the Congressional Record   At the other extreme, a "closed rule" prohibits all amendments except perhaps for committee amendments and pro forma amendments ("to strike the last word") offered only for purposes of debate  A "structured" rule, which is the most common type of rule, permits only certain specific amendments to be considered on the floor  These provisions are very important because they can prevent Representatives from offering amendments as alternatives to provisions of the bill, thereby limiting the policy choices that the House can make  Open rules have been rare in recent Congresses  However, like other committees, the Rules Committee only makes recommendations to the House  As noted above, Members debate each of its procedural resolutions in the House under the hour rule and then vote to adopt or reject it  If the House votes against ordering the previous question on a special rule, a Member could offer an amendment to it, proposing to change the conditions under which the bill itself is to be considered  Because the adoption of a special rule is often viewed as a "party loyalty" vote, however, such a development is exceedingly rare  All the same, it is important to remember that while the Rules Committee is instrumental in helping the majority party leadership formulate its order of business and in setting appropriate ground rules for considering each bill, the House retains ultimate control over what it does, when, and how  Legislation is sometimes brought before the House of Representatives for consideration by the unanimous consent of its Members  Long-standing policies announced by the Speaker regulate unanimous consent requests for this purpose  Among other things, the Speaker will recognize a Member to propound a unanimous consent request to call up an unreported bill or resolution only if that request has been cleared in advance with both party floor leaders and with the bipartisan leadership of the committee of jurisdiction  Before any bill can become law, both the House and the Senate must pass it, and the two houses must agree on each and every one of its provisions  This basic constitutional requirement means that the House must have procedures to respond when the House and Senate pass different versions of the same bill  For example, the House may pass a Senate bill with House amendments, or the Senate may pass a House bill with Senate amendments and then send its amendments to the House  In either case, the two houses must resolve their differences over these amendments before the legislative process is completed  There are essentially two ways to approach this stage of the process: (1) by dealing with the amendments individually through a process of exchanging amendments between the chambers, with the bill being sent back and forth between the House and Senate, or (2) by dealing with the amendments collectively through a conference committee of Representatives and Senators who negotiate a series of compromises and concessions that are compiled in a conference report that the two houses can vote to accept  Because the process of resolving differences between the houses can be quite complicated, only some of its basic elements are summarized here  The House normally considers Senate amendments to a House bill by unanimous consent or by suspension of the rules; the House may accept the amendments (concur in them) or amend them (concur in them with House amendments)  Alternatively, the committee with jurisdiction over the bill may authorize its chair to move that the House disagree to the Senate's amendments and send them to a conference committee  When the House amends and passes a Senate bill, it may request a conference with the Senate immediately, or it may simply send its amendments to the Senate in the hope that the Senate will accept them  If the Senate refuses to do so, it may request a conference with the House instead  On the other hand, if the House and Senate can reach agreement by proposing amendments to each other's positions, the bill can be sent to the President for his signature or veto without the need to create a conference committee  This method of resolving differences is sometimes colloquially called "ping-pong," because each chamber acts in turn, shuttling the legislation back and forth as each proposes amendments to the position of the other  If the House and Senate agree to send their versions of the bill to a conference committee, the Speaker appoints the House conferees  These conferees are usually drawn from the standing committee (or committees) with jurisdiction over the bill, although the Speaker may appoint some other Representatives as well  When the House and Senate conferees meet, they are to deal only with provisions of the bill on which the two houses disagree  They should not insert new provisions or change provisions that both houses have already approved  Furthermore, as the conferees resolve each provision or amendment in disagreement, they accept the House position, the Senate position, or a compromise between them  Like almost all other House rules, the rules limiting the authority of conferees are enforced only if Members make points of order at the appropriate time  The House may also adopt a special rule, reported by the Rules Committee, waiving points of order against a conference report  To complete their work successfully, a majority of the House conferees and a majority of the Senate conferees must sign a report that recommends all the agreements they have reached  The conferees also sign a "joint explanatory statement" that describes the original House and Senate positions and the conferees' recommendations and is the functional equivalent of a legislative committee report  After Representatives have had three days to examine a conference report, it is privileged for floor consideration; it may be called up at any time that the House is not already considering something else  The report may be debated in the House under the hour rule, so the vote almost always occurs after no more than one hour of debate  No amendments to the report are in order  In practice, however, the House almost always considers conference reports under the terms of a special rule from the Rules Committee that waives all points of order against the report and its consideration  The conference report is a proposed package settlement of a number of disagreements, so the House and Senate may accept it or reject it, but they may not change it  If the two houses agree to the report by simple majority vote, all their differences have been resolved and the bill is then "enrolled," or reprinted, for formal presentation to the President  In rare instances, conferees cannot reach agreement on one or more of the amendments in conference, or they may reach an agreement that they cannot include in their conference report because their proposal exceeds the scope of the differences between the House and Senate positions (and thus violates the rules governing the content of conference reports)  In either case, the conferees may report back to the two houses with an amendment (or amendments) in disagreement  After acting on the conference report and dealing collectively with all the other amendments that were sent to conference, the House acts on each of the amendments in disagreement by considering motions such as a motion to accept the Senate's amendment or a motion to amend it with a new House amendment  The Senate takes similar action until the disagreements on these amendments are resolved or until the two houses agree to create a new conference committee only to address the remaining amendments that are still in disagreement  The bill cannot become law until the two houses resolve all the differences between their positions  Whenever Representatives vote on the floor, there is almost always first a "voice vote," in which the Members in favor of the bill, amendment, or motion vote "Aye" in unison, followed by those voting "No " Before the Speaker (or the chair of the Committee of the Whole) announces the result, any Representative can demand a "division vote," in which the Members in favor stand up to be counted, again followed by those opposed  But before the result of either a voice vote or a division vote is announced, a Member may try to require another vote in which everyone's position is recorded publicly  This recorded vote is taken by using the House's electronic voting system  In Committee of the Whole, an electronic vote is ordered when 25 Members request it  In the House, such a vote occurs when demanded by at least one-fifth of the Members present  Alternatively, any Member can demand an electronically recorded vote in the House if a quorum of the membership is not present on the floor when the voice or division vote takes place  The Constitution requires that a quorum must be present on the floor when the House is conducting business  In the House, a quorum is a majority of the Representatives; in Committee of the Whole, it is only 100 Members  However, the House has traditionally assumed that a quorum is always present unless a Member makes a point of order that it is not  The rules restrict when Members can make such points of order, and they occur most often when the House or the Committee of the Whole is voting  In the House, for example, a Representative can object to a voice or division vote on the grounds that a quorum is not present and make that point of order  If a quorum is not present, the Speaker automatically orders an electronically recorded vote during which Members record their presence on the floor by casting their votes  The issue is decided and a quorum is established at the same time  A voice or division vote is valid even if less than a quorum participates in the vote so long as no one makes a point of order that a quorum is not present  For this reason, Members can continue to meet in their committees or fulfill their other responsibilities off the floor when the House is doing business that does not involve publicly recorded votes  On most days, the House will meet two hours prior to scheduled legislative business for Morning Hour Debate, a period in which Members can make speeches of up to five minutes on subjects of their choosing  Later, the House will meet for legislative session  After the opening prayer on each day by the House chaplain (or perhaps by a guest chaplain), the Speaker announces approval of the Journal of the previous day's proceedings  A Member may require a recorded vote on agreeing to the Speaker's approval of the Journal  Following the Pledge of Allegiance, some Members may then ask unanimous consent to address the House for one minute each on whatever subjects they wish, including subjects unrelated to the scheduled legislative business of the day  The ability to set the House's floor schedule is one of the primary powers and responsibilities of the majority party leaders, and in doing so they often consult with minority party leaders  Generally speaking, to the extent possible, majority party leaders and the committee chairmen arrange the legislative schedule for each week in advance  During the last floor session of the week, the majority leader normally announces the expected schedule for the coming week in a traditional "wrap-up" colloquy with a minority party leader  Changes in the schedule may be announced as they are made  On a Monday, Tuesday, or Wednesday, the House will commonly consider multiple measures under the "suspension of the rules" procedure  Typically, recorded votes on such measures, if requested, are clustered together and taken at the end of the day  On other days of the week, the House will usually consider a major bill pursuant to a special rule reported by the House Committee on Rules  Such a special rule would be debated in the House under the hour rule, at the end of which the majority manager of the special rule would "move the previous question," which, when adopted, brings the resolution to a vote  Once adopted, the House would ordinarily consider a measure in Committee of the Whole pursuant to the terms for general debate and amendment established by the special rule  Following consideration in the Committee of the Whole, the House would take the final votes on the measure after voting on the amendments recommended by the committee and on a minority motion to recommit, which would likely be made with amendatory instructions  As each item of business is completed, the Speaker anticipates which Member should be seeking recognition to call up the next bill or resolution  If another Representative requests to be recognized instead, t he Speaker may ask, "For what purpose does the gentleman seek recognition?" The Speaker may decline to recognize that Member if the Speaker wants the House to consider another privileged measure, motion, or report  At the end of legislative business on most days, some Members address the House for as much as an hour each on subjects of their choice  These "special order" speeches are arranged in advance and organized by the party leadership  In this way, Representatives can comment at length on current national and international issues and discuss bills that have not yet reached the House floor  The House often adjourns by early evening, although it may remain in session later when the need arises or when the end of the annual session or some other deadline approaches  The House rules for each Congress are published in a volume often called the House manual but officially entitled Constitution, Jefferson's Manual and Rules of the House of Representatives   A new edition of this collection is published each Congress  The precedents of the House established through 1935 have been compiled in the 11-volume set of Hinds' and Cannon's Precedents of the House of Representatives   More recent precedents are published as Deschler's or Deschler-Brown -Johnson Precedents of the U S  House of Representatives ; 18 volumes of this set now are available  Volume 1 of a fourth series of House precedents, Precedents of the United States House of Representatives , was initiated in 2017, and additional volumes are expected in the future  The House's procedures are summarized in House Practice: A Guide to the Rules, Precedents and Procedures of the House , by Charles W  Johnson, John V  Sullivan, and Thomas J  Wickham Jr , Parliamentarians of the House  The most recent version of House Practice was published in 2017  The Parliamentarian and his assistants welcome inquiries about House procedures and offer expert assistance compatible with their other responsibilities  CRS Report 98-995, The Amending Process in the House of Representatives , by Christopher M  Davis  CRS Report RL32200, Debate, Motions, and Other Actions in the Committee of the Whole , by Bill Heniff Jr  and Elizabeth Rybicki  CRS Report 97-552, The Discharge Rule in the House: Principal Features and Uses , by Richard S  Beth  CRS Report RL30787, Parliamentary Reference Sources: House of Representatives , by Richard S  Beth and Megan S  Lynch  CRS Report 98-696, Resolving Legislative Differences in Congress: Conference Committees and Amendments Between the Houses , by Elizabeth Rybicki  CRS Report 97-780, The Speaker of the House: House Officer, Party Leader, and Representative , by Valerie Heitshusen  CRS Report 98-314, Suspension of the Rules in the House: Principal Features , by Elizabeth Rybicki  CRS Report 98-870, Quorum Requirements in the House: Committee and Chamber , by Christopher M  Davis 


Report 2:  This longer time frame is required because the estimated contribution rate increases as the projection horizon increases and eventually converges to a steady state  If the projection period is of insufficient length, the steady-state level of contribution is not attained, and the necessary contribution rate is understated  We simulated variables used to estimate the pension contribution rate using the approach summarized in table 3  This approach is similar to the approach we have used in prior model updates  Future growth in the number of state and local government retirees— many of whom will be entitled to pension and health care benefits—is largely driven by the size of the workforce in earlier years  We simulated the number of state and local government retirees by assuming that the growth rate in the number of retirees is a weighted average of the growth rates in lagged general government and government enterprise employment  We estimated the weights using a regression of the percent change in the number of retirees on the percent change in employment 1, 6, 11, 16, 21, 26, 31, 36, and 41 years in the past  The coefficients on the past percentage changes in employment were constrained to be non- negative and to sum to 1  For this regression, we removed cyclical swings in employment using the Hodrick-Prescott filter  Similarly, future changes in the real amount of pension benefits will be a function of past changes in real wages and salaries  As indicated in table 3, we used a weighted average of past values of the state and local government employment cost index to simulate the employment cost index for state and local government retirees  We chose the weights to reflect changes in the share and average real benefit level of three subsets of the retiree population over time: (1) new retirees entering the beneficiary pool, (2) deceased retirees leaving the pool, and (3) continuing retirees from the previous year  We simulated the weight for new retirees in a year as the number of retirees less the number of continuing retirees divided by the number of retirees  We simulated the weight for deceased retirees as the mortality rate multiplied by last year’s retirees divided by this year’s retirees  We simulated the weight for continuing retirees as last year’s retirees divided by this year’s retirees  Finally, we simulated the employment cost index for state and local government retirees as the sum of the weight on new retirees multiplied by the state and local government employment cost index and the weight on continuing retirees multiplied by the state and local government employment cost index 8 years prior, less the weight on deceased retirees multiplied by the state and local government employment cost index 21 years prior  As discussed above, we started with historical data for 2017, or the most recent year available, simulated all of the variables in table 3 over the long run, and then used the consumer price index (CPI) and the real return on pension assets to calculate the total present value of wages and salaries for state and local government general government and government enterprise employees, the total present value of real pension benefits paid to state and local government retirees, and the total present value of state and local government employees’ pension contributions  Then, we calculated the total present value of state and local governments’ pension liabilities as the total present value of real pension benefits paid to state and local government retirees less the total present value of state and local government employees’ pension contributions, and the value of assets in state and local government defined benefit pension funds in 2017  Finally, we estimated state and local governments’ pension contribution rate as the ratio of the total present value of their pension liabilities to the total present value of wages and salaries for state and local government employees  Table 4 summarizes the approach we used to simulate interest rates on state and local government financial assets and liabilities  This approach is similar to the approach we have used in prior model updates  Table 5 summarizes our approach to simulating state and local government receipts  This approach is similar to the approach we have used in prior model updates  These variables track state and local government receipts in table 1 above as follows: State and local government personal income tax revenue is the sum of state personal income tax revenue and local personal income tax revenue; State and local government personal tax revenue is the sum of personal income tax revenue and other personal tax revenue; State and local government revenue from taxes on production and imports is the sum of general sales tax revenue, excise tax revenue, property tax revenue, and revenue from other taxes on production and imports; State and local government current tax revenue is the sum of personal tax revenue, revenue from taxes on production and imports, and corporate income tax revenue; State and local government current transfer receipts are equal to federal Medicaid grants minus Medicare Part D payments to the federal government, plus other federal grants (excluding investment grants), transfer receipts from businesses, and transfer receipts from persons; State and local government current receipts are the sum of current tax revenue, current transfer receipts, income on assets, social insurance contributions, and government enterprise surplus; State and local government capital transfer receipts are the sum of federal investment grants and estate and gift tax revenue; and State and local government total receipts are the sum of current receipts and capital transfer receipts  Our general approach to simulating state and local government expenditures is to assume that state and local governments maintain the current level of public goods and services provision per capita (see table 6)  Thus, we generally assume that expenditures keep up with U S  population growth and some measure of inflation, where the relevant rate of inflation varies depending on the specific type of expenditure  However, we use alternative approaches—described below—to simulate depreciation, interest payments, and social benefits for health care  This approach is similar to the approach we have used in prior model updates  These variables correspond to state and local government expenditures in table 1 as follows: Employee compensation is the sum of wages and salaries, pension contributions, health benefits for current employees, health benefits for retirees, and other compensation, for state and local government general government employees  Consumption expenditures are the sum of employee compensation, general government fixed capital consumption, and other general government consumption expenditures  Social benefit payments are the sum of Medicaid benefits, non- Medicaid health benefits, and non-health social benefits  Current expenditures are the sum of consumption expenditures, social benefit payments, interest payments, and subsidy payments  Total expenditures are the sum of current expenditures, gross investment, capital transfer payments, and purchases of nonproduced assets, minus general government and government enterprise fixed capital consumption  Table 7 summarizes our approach for simulating state and local government financial assets and liabilities  This approach is similar to the approach we have used in prior model updates  Our method for simulating the sectors’ short-term debt outstanding leverages the fact that for any entity, there is a direct relationship between budget outcomes and changes in financial position  Specifically, if expenditures exceed receipts, the gap needs to be financed by some combination of changes in financial assets and changes in financial liabilities  If governments spend more than they take in, they must pay for it by issuing debt, cashing in assets, or some combination of the two  Conversely, if receipts exceed expenditures and the sector is a net lender, its net financial investment (the net change in financial assets minus the net change in financial liabilities) must equal the budget surplus  The relationship between budget outcomes and the sector’s financial position is shown in the following accounting identity: total receipts – total expenditures = change in financial assets – change in financial liabilities  The sector’s financial liabilities include short-, medium-, and long-term debt; trade payables; and loans from the federal government, so the accounting identity can be rewritten as follows: total receipts – total expenditures = change in financial assets – change in medium- and long-term debt – change in trade payables – change in federal government loans – change in short term debt  For a given difference between total receipts and total expenditures, various combinations of changes in financial assets and changes in financial liabilities can satisfy this identity  However, we assumed that financial assets grow at the same rate as U S  GDP, that medium- and long-term debt outstanding is determined using the historical relationship described in table 7, that federal government loans to state and local governments are determined using the historical relationship described in table 7, and that trade payables grow at the same rate as other state and local government consumption spending  If the first four terms on the right hand side of the identity are already determined, then only the fifth term— the change in short-term debt—is free to satisfy this identity  As discussed above, our indicators of fiscal balance are operating balance, net saving, and net lending or borrowing  This approach is similar to the approach we have used in prior model updates  Recall that we defined operating balance as follows: operating balance = total receipts – (gross investment + capital transfer payments + net purchases of nonproduced assets – medium- and long-term debt issuance) – (current expenditures – consumption of general government fixed assets) – current surplus of state and local government enterprises – net social insurance fund balance  By substituting for total receipts and current expenditures using the relationships described above and rearranging terms, we can also calculate operating balance using a formula that more easily identifies its revenue components—the items in the first set of parentheses—and expenditure components—the items in the second set of parentheses: operating balance = (current tax revenues + estate and gift tax revenues + social insurance fund contributions + income receipts from assets + current transfers + federal investment grants + medium- and long-term debt issuance) – (compensation of general government employees + social benefit payments + interest payments + gross investment + capital transfer payments + net purchases of nonproduced assets + other general government consumption expenditures + subsidy payments + net social insurance fund balance)  Some of our simulations are based on estimated historical relationships between pairs of variables: Elasticity of real personal consumption expenditures less food and services with respect to real wages and salaries; Elasticity of the real U S  market value of real estate with respect to Relationship between effective interest rates on financial assets and Relationship between state and local government bond yields and 10- year Treasury rates; Relationship between effective interest rates on long-term state and local government debt and federal government loans and state and local government bond yields; Elasticity of real state personal income tax revenue with respect to Elasticity of real state and local government excise tax revenue with respect to real wages and salaries; Relationship between long-term debt issuance as a fraction of gross investment and nonproduced asset purchases in excess of federal investment grants and the change in state and local government bond yields; and Relationship between real federal government lending to state and local governments and real U S  GDP  To estimate each of these historical relationships, we used the following approach: first, we assessed the order of integration of both variables using unit root tests of the levels and the first differences, where a variable is integrated of order 0 (I(0) or stationary) if we rejected the null hypothesis of a unit root in the levels at standard significance levels, and is integrated of order 1 (I(1) or first-order nonstationary) if we could not reject the null hypothesis of a unit root in the levels but we could do so for the first differences  For relationships between variables that were both stationary, we estimated an autoregressive distributed lag model, where y is the dependent variable, x is the independent variable, and ε is an independent, identically distributed error term  The long-run impact on y of a one unit change in x is given by ∑   We initially chose the number of lags based on the Bayesian Information Criteria and then added additional lags of the dependent variable, if needed, until the residuals were consistent with a white noise process at standard significance levels  For relationships between variables that were both first-order nonstationary, we used the same approach but also used the Pesaran, Shin, and Smith bounds test for the existence of a cointegrating (long-run equilibrium) relationship  We concluded that the variables were cointegrated if we rejected the null hypothesis of no relationship at standard significance levels  Tables 8 and 9 summarize the estimated regression models as well as the results of the unit root, white noise, and cointegration tests  We simulated the model for the 75-year period from 2018 through 2092, and we used the results to calculate the operating balance for the state and local government sector as a percentage of U S  GDP  Our results suggest that if the sector maintains current policy and continues to provide current per capita levels of public goods and services, then its operating balance will decline from about -1 percent of U S  GDP to about -3 percent of U S  GDP over the next 50 years  To shed light on how maintaining the operating balance at or above zero would affect the state and local government sector, we used the model to simulate the level of total expenditures that would keep the operating balance greater than or equal to zero  We then calculated the difference between the present value of total expenditures simulated assuming the sector maintains balance, and the present value of total expenditures simulated assuming the sector maintains current policies, both as a percentage of the present value of total expenditures assuming the sector maintains current policies, and as a percentage of the present value of U S  GDP  We calculated all of the present values for the 50-year period from 2018 through 2067, and we used a discount rate equal to the average of the 3-month Treasury rate and the 10-year Treasury rate for each year  Our results suggest that the difference between the present value of total expenditures that maintain balance and the present value of total expenditures that maintain current policies is about -14 7 percent of the present value of total expenditures that maintain current policies, or about -2 4 percent of the present value of U S  GDP  That is, our simulations suggest that maintaining balance would require the sector to spend about 14 7 percent less than it would spend each year to maintain current policies  We note that a similar exercise based on simulating total revenues required to maintain the operating balance at or above zero would generate a similar result  Our approach has a number of limitations and the results should be interpreted with caution: The state and local government fiscal model is not designed for certain types of analyses  The simulations are not intended to provide precise predictions  Even though we know that these governments regularly make changes to tax laws and expenditures, the model essentially holds current policy in place and analyzes the fiscal future for the sector as if those policies were maintained because it would be highly speculative to make any assumptions about future policy adjustments  Fiscal outcomes, as related to the state and local government sector’s financial position and solvency, may not reflect all aspects of the sector’s fiscal health  Other indicators include economic indicators that go beyond the sector’s financial position to include economic growth, income, or distributional equity, as well as indicators of the quality of services provided by the sector, including education, health care, infrastructure, and other public goods and services  Our unit of analysis is the state and local government sector as a whole, so our results provide an assessment of the sector’s fiscal outlook  However, individual state and local governments likely exhibit significant heterogeneity in their expenditure and revenue patterns, so their fiscal outlooks will likely differ from that for the sector  Nevertheless, it is informative to assess the overall fiscal outlook of the sector because doing so reveals the outlook for the average state or local government  In addition, aggregate data on the sector are available on a more timely basis than data for individual state and local governments  This allows for a better assessment of the sector’s current fiscal outlook  Our results for the sector also provide a baseline from which to view the experiences of individual state and local governments  Finally, assessing the fiscal outlook of the sector as a whole can help mitigate the tendency to extrapolate from the most visible, but potentially not representative, experiences of individual states or localities  Our baseline approach to simulating the fiscal outlook for the state and local government sector is described in appendix I  As part of our simulation approach, we used five variables with values for the simulation period—the period from 2018 through 2092—that are projected outside the model and that do not rely on maintaining historical relationships: U S  population, real U S  gross domestic product (GDP) growth, national health care excess cost growth, Medicaid excess cost growth, and the real rate of return on pension assets  U S  population  For our baseline simulations, we used the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds’ (OASDI Trustees) intermediate population projections  Real U S  GDP  For our baseline simulations, we projected real U S  GDP to grow at the same rate as Congressional Budget Office (CBO) projections for the period from 2018 through 2028 and to grow at the same rate as the OASDI Trustees’ intermediate projections of real U S  GDP growth for the period from 2029 through 2092  National health expenditures excess cost growth  For our baseline simulations, we used Centers for Medicare & Medicaid Services’ (CMS) baseline projection of national health expenditures excess cost growth  Medicaid excess cost growth  For our baseline simulations, for the period from 2029 through 2092, we used Medicaid excess cost growth derived from CMS’s baseline projections  Real rate of return on state and local government pension assets  For our baseline simulations, we assumed a 5 percent real rate of return on state and local government pension assets  To assess the sensitivity of our results to changes in these baseline projections, we selected two alternative projections of each of these variables, one associated with a faster growth rate or rate of return and one associated with a slower growth rate or rate of return  U S  population  For our alternative simulations, we used the OASDI Trustees’ high cost and low cost population projections  Real U S  GDP  For our alternative simulations, we used the OASDI Trustees’ high cost and low cost projections of real U S  GDP growth  National health expenditures excess cost growth  For our alternative simulations, we used CMS’s alternative projection of national health expenditures excess cost growth  As another alternative, we simulated the model assuming excess cost growth for national health expenditures is zero  Medicaid excess cost growth  For our alternative simulations, for the period from 2029 through 2092, we used Medicaid excess cost growth derived from CMS’s alternative projections for the period from 2029 through 2092  As another alternative, we simulated the model assuming Medicaid excess cost growth is zero for the period from 2029 through 2092  Real rate of return on state and local government pension assets  For our sensitivity analysis, we used real rates of return of 2 5 percent and 7 5 percent  Table 10 shows the average annual growth rate or rate of return associated with the baseline and alternative projections of each variable for the simulation period  For our simulations based on alternative assumptions about U S  population growth and real U S  GDP growth, as well as simulations based on alternative assumptions about real pension asset returns, we simulated the model changing one variable at a time and leaving the others fixed at their baseline values  For example, for one simulation we used the slower assumption for real U S  GDP growth and the baseline assumptions for all other variables  For our simulations based on alternative assumptions about excess cost growth for national health expenditures and for Medicaid, we changed both variables in the same direction and left the others fixed at their baseline values  For example, for one simulation we used zero excess cost growth for both national health expenditures and for Medicaid, and made the baseline assumption for the other variables  Thus, our sensitivity analysis is in the spirit of a partial equilibrium comparative statics analysis that sheds light on how each of the individual variables may affect the state and local government sector’s fiscal outlook  However, these variables are likely to be correlated so future changes in one would likely be associated with changes in others  State and Local Governments’ Fiscal Outlook: December 2016 Update, GAO-17-213SP  Washington, D C : Dec  8, 2016  State and Local Governments’ Fiscal Outlook: December 2015 Update, GAO-16-260SP  Washington, D C : Dec  16, 2015  State and Local Governments’ Fiscal Outlook: December 2014 Update, GAO-15-224SP  Washington, D C : Dec  17, 2014  State and Local Governments’ Fiscal Outlook: April 2013 Update, GAO-13-546SP  Washington, D C : Apr  29, 2013  State and Local Governments’ Fiscal Outlook: April 2012 Update, GAO-12-523SP  Washington, D C : Apr  5, 2012  State and Local Government Pension Plans: Economic Downturn Spurs Efforts to Address Costs and Sustainability, GAO-12-322  Washington, D C : Mar  2, 2012  State and Local Governments’ Fiscal Outlook: April 2011 Update, GAO-11-495SP  Washington, D C : Apr  6, 2011  State and Local Governments: Knowledge of Past Recessions Can Inform Future Federal Fiscal Assistance, GAO-11-401  Washington, D C : Mar  31, 2011  State and Local Governments: Fiscal Pressures Could Have Implications for Future Delivery of Intergovernmental Programs, GAO-10-899  Washington, D C : July 30, 2010  State and Local Governments’ Fiscal Outlook: March 2010 Update, GAO-10-358  Washington, D C : Mar  2, 2010  Update of State and Local Government Fiscal Pressures, GAO-09-320R  Washington, D C : Jan  26, 2009  State and Local Fiscal Challenges: Rising Health Care Costs Drive Long- term and Immediate Pressures, GAO-09-210T  Washington, D C : Nov  19, 2008  State and Local Governments: Growing Fiscal Challenges Will Emerge during the Next 10 Years, GAO-08-317  Washington, D C : Jan  22, 2008  Our Nation’s Long-Term Fiscal Challenge: State and Local Governments Will Likely Face Persistent Fiscal Challenges in the Next Decade, GAO-07-1113CG  Washington, D C : July 18, 2007  State and Local Governments: Persistent Fiscal Challenges Will Likely Emerge within the Next Decade, GAO-07-1080SP  Washington, D C : July 18, 2007  In addition to the contacts listed above, Brenda Rabinowitz and Courtney LaFountain (Assistant Directors), David Aja, Brett Caloia, Ann Czapiewski, Joe Silvestri, Stewart Small, Andrew J  Stephens, Frank Todisco, Walter Vance, and Chris Woika made significant contributions to this report 

ground_truth: Fiscal sustainability presents a national challenge shared by all levels of government. Since 2007, GAO has published simulations of long-term fiscal trends in the state and local government sector, which have consistently shown that the sector faces long-term fiscal pressures. While most states have requirements related to balancing their budgets, deficits can arise because the planned annual revenues are not generated at the expected rate, demand for services exceeds planned expenditures, or both, resulting in a near-term operating deficit. This report updates GAO's state and local fiscal model to simulate the fiscal outlook for the state and local government sector. This includes identifying the components of state and local expenditures likely to contribute to the sector's fiscal pressures. In addition, this report identifies considerations related to federal policy and other factors that could contribute to uncertainties in the state and local government sector's long-term fiscal outlook. GAO's model uses the Bureau of Economic Analysis's National Income and Product Accounts as the primary data source and presents the results in the aggregate for the state and local sector as a whole. The model shows the level of receipts and expenditures for the sector until 2067, based on current and historical spending and revenue patterns. In addition, the model assumes that the current set of policies in place across state and local government remains constant to show a simulated long-term outlook. GAO's simulations suggest that the state and local government sector will likely face an increasing difference between revenues and expenditures during the next 50 years as reflected by the operating balance--a measure of the sector's ability to cover its current expenditures out of its current receipts. While both expenditures and revenues are projected to increase as a percentage of gross domestic product (GDP), a difference between the two is projected to persist because expenditures are expected to grow faster than revenues throughout the simulation period. GAO's simulations also suggest that growth in the sector's overall spending is largely driven by health care expenditures--in particular, Medicaid spending and spending on health benefits for state and local government employees and retirees. These expenditures are projected to grow as a share of GDP during the simulation period. GAO's simulations also suggest that revenues from personal income taxes and federal grants to states and localities will increase during the simulation period. However, revenues will grow more slowly than expenditures such that the sector faces a declining fiscal outlook. GAO also identified federal policy changes that could affect the state and local government sector's fiscal outlook. For example, the effects of the recently-enacted Tax Cuts and Jobs Act will likely depend on how states incorporate the Act into their state income tax rules. In addition, other factors, such as economic growth and rates of return on pension assets, could shift future fiscal outcomes for the sector.