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



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

Report 1: Puerto Rico, which has approximately 3 3 million residents according to U S  Census Bureau (Census) estimates, is the largest and most populous territory of the United States  As a territory, Puerto Rico is subject to congressional authority, though Congress has granted it broad authority over matters of internal governance—notably, by approving Puerto Rico’s constitution in 1952  Individuals born in Puerto Rico are U S  citizens and can migrate freely to the states  Puerto Rico and its residents are generally subject to the same federal laws as the states and their residents, except in cases where specific exemptions have been made, such as with certain federal programs  For example, Puerto Rico residents generally have full access to Social Security and unemployment insurance; however, for some programs, such as Medicaid, federal funding in Puerto Rico is restricted as compared to funding in the states  Residents of Puerto Rico are exempt from paying federal income tax on income from sources in Puerto Rico  Residents are required to pay federal income tax on income from sources outside of Puerto Rico  They are also required to pay federal employment taxes, such as Social Security and Medicare taxes, on their income regardless of where it was earned  Puerto Rico residents are also ineligible for certain federal tax credits  Corporations located in Puerto Rico are generally subject to the same federal tax laws as corporations located in a foreign country  Corporations in Puerto Rico are generally exempt from federal taxes on profits except as such profits are effectively connected to a trade or business in the states, and so long as those profits remain held outside of the states  Additionally, these corporations were subject to a withholding tax on certain investment income from the United States not connected to a trade or business  Under the 2017 Public Law 115-97, starting in 2018 U S  corporations that are shareholders in foreign corporations, such as those organized under Puerto Rico law, generally do not owe tax on dividends received from those foreign corporations  Prior to this law, dividend payments to U S  corporate shareholders were considered taxable interest for the U S  parent corporation  Prior to 1996, a federal corporate income tax credit—the possessions tax credit—was available to certain U S  corporations that located in Puerto Rico  In general, the credit equaled the full amount of federal tax liability related to an eligible corporation’s income from its operations in a possession—including Puerto Rico—effectively making such income tax- free  In 1996, the tax credit was repealed, although corporations that were existing credit claimants were eligible to claim credits through 2005  Puerto Rico’s economy is in a prolonged period of economic contraction  According to data from Puerto Rico’s government, Puerto Rico’s economy grew in the 1990s and early 2000s  However, between 2005 and 2016— the latest year for which data were available as of March 1, 2018—Puerto Rico’s economy experienced year-over-year declines in real output in all but two years, as measured by real gross domestic product (GDP)  From 2005 to 2016, Puerto Rico’s real GDP fell by more than 9 percent (from $82 8 billion to $75 0 billion in 2005 dollars)  Puerto Rico’s gross national product (GNP) followed a similar pattern over the same period, declining by more than 11 percent from 2005 to 2016 (from $53 8 billion to $47 7 billion in 2005 dollars)  Figure 1 shows Puerto Rico’s real GDP and GNP growth rates from 1991 through 2016  The decline in Puerto Rico’s output has, in more recent years, occurred in conjunction with a decline in Puerto Rico’s population  According to Census estimates, Puerto Rico’s population declined from a high of approximately 3 8 million people in 2004 to 3 3 million people in 2017, a decline of 12 8 percent  This population loss closely matched the decline in real output  From 2004 to 2016, Puerto Rico’s real GNP fell by 9 5 percent, while its real GNP per capita increased by 1 6 percent over the same time period  In addition to Puerto Rico’s declining population, the territory also has a lower share of employed persons compared to the United States as a whole  As of 2017, approximately 37 percent of Puerto Rico residents were employed compared to approximately 60 percent for the United States as a whole  Puerto Rico’s employment-to-population ratio reached highs in 2005 and 2006 when it was approximately 43 percent, according to data from the Federal Reserve Bank of St  Louis  According to data from the Bureau of Labor Statistics (BLS), between 2005 and 2017, Puerto Rico’s unemployment rate fluctuated between 10 2 percent and 17 0 percent, with an average of 13 1 percent  During the same period, the nationwide unemployment rate fluctuated between 4 1 percent and 10 0 percent, with an average of 6 5 percent  These factors have combined to leave Puerto Rico with a small and declining labor force  From January 2006 to December 2017—the latest month for which data were available as of March 1, 2018—Puerto Rico’s labor force decreased from approximately 1 4 million persons to 1 1 million persons, according to data from BLS  Puerto Rico’s government has operated with a deficit—where expenses exceed revenues—in each fiscal year since 2002, and its deficits grew over time (see figure 2)  Puerto Rico’s governmental activities can be divided among the primary government and component units  Puerto Rico’s primary government provides and funds services such as public safety, education, health care, and economic development  Puerto Rico’s component units are legally separate entities for which its government is nonetheless financially accountable, and provide services such as public transportation, highways, electricity, and water  In fiscal year 2014, the latest for which audited financial data are available, the Puerto Rico government collected $32 5 billion in revenue, of which $19 3 billion was collected by the primary government, and $13 2 billion was collected by the component units  That year Puerto Rico’s government spent $38 7 billion, of which $22 0 billion was spent directly by the primary government, while $16 7 billion was spent by the government’s various component units  The Puerto Rico Electric Power Authority (PREPA), which operates the territory’s electricity generation and distribution infrastructure, represented the largest component unit expenditure in fiscal year 2014  Figures 3 and 4 show a breakdown of expenses for Puerto Rico’s primary government and its component units, respectively  Puerto Rico’s government spending accounts for more than a third of the territory’s GDP  In fiscal year 2014—the latest year for which audited spending data were available as of March 1, 2018—primary government expenditures of $22 0 billion represented 21 percent of the territory’s GDP  Including component spending, total public expenditures were $38 7 billion, which represented 38 percent of the territory’s GDP  By comparison, our prior work has shown that in 2014, total state and local government expenditures represented about 14 percent of GDP for the United States as a whole, excluding territories  Federal government expenditures were 20 percent of GDP for the United States as a whole in 2014  Puerto Rico’s total public debt as a share of its economy has grown over time  In 2002, the value of its debt was 42 percent of the territory’s GDP, and 67 percent of its GNP  Both of these ratios grew over time such that by 2014, Puerto Rico’s total public debt was 66 percent of the territory’s GDP and 99 percent of its GNP  Figure 5 compares Puerto Rico’s total public debt to its GDP and GNP, in both aggregate and per capita  As of the end of fiscal year 2014, the last year for which Puerto Rico issued audited financial statements, Puerto Rico had $67 8 billion in net public debt outstanding, or $68 1 billion excluding accounting adjustments that are not attributed in the financial statements to specific agencies  Of the $68 1 billion, $40 6 billion was owed by Puerto Rico’s primary government, and $27 6 billion was owed by its component units, as shown in figure 6 (these amounts do not sum to $68 1 billion because of rounding)  The growth of Puerto Rico’s total debt resulted in greater annual debt servicing obligations  In fiscal year 2002, it cost Puerto Rico $2 7 billion to service its debt, representing about 12 percent of Puerto Rico’s $21 6 billion in total public revenue for that year  By fiscal year 2014, Puerto Rico’s annual debt service cost rose to $5 0 billion, representing just over 15 percent of Puerto Rico’s $32 5 billion in total public revenue for that year  Following years of expenditures that exceeded revenue, and a growing debt burden, in August 2015, Puerto Rico failed to make a scheduled bond payment  Since then, Puerto Rico has defaulted on over $1 5 billion in debt  In June 2016, Congress enacted and the President signed PROMESA in response to Puerto Rico’s fiscal crisis  PROMESA established a Financial Oversight and Management Board for Puerto Rico (Oversight Board), and granted it broad powers of fiscal and budgetary control over Puerto Rico  PROMESA also established a mechanism through which the Oversight Board could petition U S  courts on Puerto Rico’s behalf to restructure debt  Under federal bankruptcy laws, Puerto Rico is otherwise prohibited from authorizing its municipalities and instrumentalities from petitioning U S  courts to restructure debt  The Oversight Board petitioned the U S  courts to restructure debt on behalf of Puerto Rico’s Highways and Transportation Authority and the Government Employees Retirement System on May 21, 2017 and on behalf of PREPA on July 2, 2017  In addition to its debt obligations, Puerto Rico also faces a large financial burden from its pension obligations for public employees  Puerto Rico’s public pension systems had unfunded liabilities of approximately $49 billion as of the end of fiscal year 2015, the most recent year for which data are available  Unfunded pension liabilities are similar to other kinds of debt because they constitute a promise to make a future payment or provide a benefit  Based on interviews with current and former Puerto Rico officials, federal officials, and other relevant experts, as well as a review of relevant literature, the factors that contributed to Puerto Rico’s financial condition and levels of debt related to: (1) Puerto Rico’s government running persistent deficits and (2) its use of debt to cope with deficits  As previously mentioned, Puerto Rico’s government has operated with a deficit in all years since 2002, and deficits grew over time  To cope with its deficits, Puerto Rico’s government issued debt to finance operations, rather than reduce its fiscal gap by cutting spending, raising taxes, or both  Through interviews with current and former Puerto Rico officials; federal officials; experts in Puerto Rico’s economy, the municipal securities markets, and state and local budgeting and debt management; as well as a review of relevant literature, we identified three groups of factors that contributed to Puerto Rico’s persistent deficits: (1) inadequate financial management and oversight practices, (2) policy decisions, and (3) prolonged economic contraction  Some of the factors in these groups may be interrelated  To cope with its persistent deficits, Puerto Rico issued debt to finance operations  In reviewing 20 of Puerto Rico’s largest bond issuances from 2000 to 2017, totaling around $31 billion, we found that 16 were issued exclusively to repay or refinance existing debt and to fund operations  According to ratings agency officials and experts in state and local government, states rarely issue debt to fund operations, and many states prohibit this practice  According to former Puerto Rico officials and experts on Puerto Rico’s economy, high demand for Puerto Rico debt and the Government Development Bank for Puerto Rico (GDB) facilitating rising debt levels enabled Puerto Rico to continue to use debt to finance operations  Puerto Rico issued a relatively large amount of debt, given the size of its population  Based on an analysis of fiscal year 2014 comprehensive annual financial reports of the 50 states and Puerto Rico, Puerto Rico had the second highest amount of outstanding debt among states and territories, while its population falls between the 29th and 30th most populous states  By comparison, California, the state with the largest amount of outstanding debt, is the most populated state  Various factors drove demand for Puerto Rico municipal bonds, even as the government’s financial condition deteriorated  Triple tax exemption: According to a former Puerto Rico official, Federal Reserve Bank of New York officials, and an expert on Puerto Rico’s economy, Puerto Rico’s municipal bonds were attractive to investors because interest on the bonds was not subjected to federal, state, or local taxes, regardless of where the investors resided  In contrast, investors may be required to pay state or local taxes on interest income earned from municipal securities issued by a state or municipality in which they do not reside  Investment grade bond ratings: Puerto Rico maintained investment grade bond ratings until February 2014, even as its financial condition was deteriorating  Credit ratings inform investment decisions by both institutional investors and broker dealers  According to a current Puerto Rico official and an expert on Puerto Rico’s economy, investment grade ratings for Puerto Rico municipal bonds may have driven demand for these securities in the states  Based on interviews with ratings agency officials and a review of rating agency criteria, we found that Puerto Rico may have maintained its investment grade rating for two reasons  First, Puerto Rico could not seek debt restructuring under federal bankruptcy laws, prior to the passage of PROMESA in 2016  According to rating agency officials, bonds with assumed bankruptcy protection tend to rate higher than those without such protection  Second, legal frameworks that prioritize debt service are often viewed as positive for credit ratings, according to rating agency criteria  In the event that the Puerto Rico government does not have sufficient resources to meet appropriations for a given fiscal year, Puerto Rico’s constitution requires that the government pay interest and amortization on the public debt before disbursing funds for other purposes in accordance with the order of priorities established by law  The prior Puerto Rico Governor cited this constitutional provision as providing the authority to redirect revenue streams from certain entities to the payment of general obligation debt  This redirection of revenue streams is commonly known as a clawback  Lack of transparency on its financial condition: Municipal market analysts told us that untimely financial information made it difficult for institutional and individual investors to assess Puerto Rico’s financial condition, which may have resulted in investors not being able to fully take the investment risks into account when purchasing Puerto Rico debt  According to one report, between 2010 and 2016 municipal issuers issued their audited financial statements an average of 200 days after the end of their fiscal years  However, between fiscal years 2002 and 2014, Puerto Rico issued its statements an average of 386 days after the end of its fiscal year, according to our analysis of Puerto Rico’s audited financial statements  Moreover, Puerto Rico had not issued its fiscal years 2015 and 2016 audited financial statements as of March 1, 2018, or 975 and 609 days after the end of those fiscal years, respectively  Estate tax structures: Puerto Rico residents had incentive to invest in municipal bonds issued in Puerto Rico over those issued in the United States because of federal and Puerto Rico estate tax structures  Current and former Puerto Rico officials told us that this incentive drove demand among Puerto Rico residents for bonds issued in Puerto Rico  For federal estate tax purposes, Puerto Rico residents are generally considered non-U S


Report 2:  residents and non-citizens for all of their U S -based property, including investments  Estates of Puerto Rico residents are required to pay the prevailing federal estate tax— which ranges from 18 percent to 40 percent depending on the size of an estate—for any U S -based property valued over $60,000  In contrast, prior to 2017, all Puerto Rico-based property was only subject to the Puerto Rico estate tax of 10 percent  Puerto Rico’s estate tax was repealed in 2017  In addition to financing from the municipal bond markets, GDB also provided an intragovernmental source of financing  Prior to April 2016, GDB acted as a fiscal agent, trustee of funds, and intergovernmental lender for the Government of Puerto Rico  GDB issued loans to Puerto Rico’s government agencies and public corporations to support their operations  GDB provided loans to government entities valued at up to 60 percent of GDB’s total assets, as shown in Figure 11  In general, these entities did not fulfill the terms of their borrowing agreements with GDB, while they independently accessed the municipal bond market  Additionally, according to GDB’s audited financial statements, GDB did not reflect loan losses in its audited financial statements until 2014 because it presumed that Puerto Rico’s legislature would repay loans through the general fund or appropriations, as generally required by the acts that approved such loans  Facing non-repayment of public sector loans, GDB took on debt to maintain liquidity  According to GDB documents, repayment of amounts owed to GDB was a main reason for the creation of the Puerto Rico Sales Tax Financing Corporation (COFINA), an entity backed by a new sales tax, through which Puerto Rico issued some of its debt  Though initially intended as a means to repay GDB and other debt, COFINA bonds were also used to finance operations  Through our interviews and an assessment of relevant literature, we identified three potential federal actions that could help address some of the factors that contributed to unsustainable indebtedness in Puerto Rico  Consistent with the provision in PROMESA that was the statutory requirement for this work, we focused on actions that were non-fiscal in nature—that is, actions that would not increase the federal deficit  There are tradeoffs for policymakers to consider when deciding whether or how to implement any policy  For each action, we describe a specific challenge as it relates to debt accumulation in Puerto Rico, identify a possible federal response to the challenge, and describe other considerations for policymakers  To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, legislative and executive branch policymakers could further ensure that municipal securities issuers provide timely, ongoing, and complete disclosure materials to bondholders and the public  Specifically, Congress could authorize SEC to establish requirements for municipal issuers on the timing, frequency, and content of initial and continuing disclosure materials  In general, the municipal securities market is less regulated and transparent than other capital markets, such as equity markets  For example, SEC’s authority to directly establish or enforce initial and continuing disclosure requirements for issuers—including those in Puerto Rico—is limited  SEC requires that underwriters (sellers of municipal securities) reasonably determine that issuers have undertaken continuing disclosure agreements (CDA) to publicly disclose ongoing annual financial information, operating data, and notices of material events  However, federal securities laws do not provide SEC with the authority to impose penalties on municipal issuers for noncompliance with CDAs, which may limit any incentive for issuers to comply with SEC disclosure and reporting guidance  As a result, SEC has limited ability to compel issuers to provide continuing disclosure information  As previously discussed, the Puerto Rico government often issued its audited financial statements in an untimely manner, thus failing to meet its contractual obligations to provide continuing disclosures for securities it issued  SEC could not directly impose any consequences on Puerto Rico’s government for failing to adhere to the terms of, or enforce compliance with, the CDAs  Additionally, as previously discussed, municipal market analysts told us that untimely financial information made it difficult for institutional and individual investors to assess Puerto Rico’s financial condition  Timely disclosure of information would help investors make informed decisions about investing in municipal securities and help protect them against fraud involving the securities  These disclosures would be made to investors at the time of purchasing securities and throughout the term of the security, including when material changes to an issuer’s financial condition occur  According to SEC staff, enhanced authority could prompt more municipal issuers to disclose financial information, including audited financial statements, in a timelier manner  For example, SEC staff said that if the agency had required that issuers provide timely financial statements at the time of issuing a municipal security, this may have precluded Puerto Rico from issuing its $3 5 billion general obligation bond in 2014  However, any rulemaking SEC would or could take as a result of enhanced authority would depend on a number of factors, such as compliance with other SEC guidance and related laws  Since this action would apply to all U S  municipal securities issuers, it has policy and implementation implications that extend well beyond Puerto Rico  For example, establishing and enforcing initial and continuing disclosure requirements for municipal securities issuers could place additional burdens on state and local issuers, and not all municipal issuers use standardized accounting and financial reporting methods  As a result, state and local governments may need to spend resources to adjust financial reporting systems to meet standardized reporting requirements  However, in a 2012 report proposing this action, SEC said it could mitigate this burden by considering content and frequency requirements that take into account, and possibly vary by, the size and nature of the municipal issuer, the frequency of issuance of securities, the type of municipal securities offered, and the amount of outstanding securities  To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, Congress could ensure that investors residing in Puerto Rico receive the same federal investor protections as investors residing in states  Specifically, Congress could subject all investment companies in Puerto Rico to the Investment Company Act of 1940, as amended (1940 Act)  In recent years, the House and Senate separately have passed legislation that would achieve this action  Certain investment companies in Puerto Rico and other territories— specifically, those whose securities are sold solely to the residents of the territory in which they are located—are exempt from the 1940 Act’s requirements  The 1940 Act regulates investment companies, such as mutual funds that invest in securities of other issuers and issue their own securities to the investing public  It imposes several requirements on investment companies intended to protect investors  For example, it requires that investment companies register with SEC and disclose information to investors about the businesses and risks of the companies in which they invest, and the characteristics of the securities that they issue  It also restricts investment companies from engaging in certain types of transactions, such as purchasing municipal securities underwritten by affiliated companies  According to a former Puerto Rico official, some broker-dealers in Puerto Rico underwrote Puerto Rico municipal securities issuances and investment companies managed by affiliated companies of these underwriters purchased the securities, packaged them into funds, and marketed the funds to investors residing in Puerto Rico  This practice would be prohibited or restricted for investment companies subject to the 1940 Act, as it might result in investment companies not acting in the best interests of their investors  If all Puerto Rico investment companies had been subject to the 1940 Act, they would have been prohibited or restricted from investing in Puerto Rico municipal bonds underwritten by affiliated companies  Also, these investment companies may have further disclosed the risks involved in Puerto Rico municipal bonds to Puerto Rico investors  As a result, demand for Puerto Rico municipal bonds from Puerto Rico investment companies and residents may have been lower had the 1940 Act requirements applied to all Puerto Rico investment companies, and it may have been more difficult for the Puerto Rico government to issue debt to finance deficits  SEC staff told us that industry groups had raised objections to extending the 1940 Act provisions to all investment companies in Puerto Rico  These industry groups noted that, among other things, certain investment companies would have difficulty meeting the 1940 Act’s leverage and asset coverage requirements and adhering to some restrictions on affiliated transactions  However, SEC staff noted that under certain legislation that passed the House or Senate separately, as described above, Puerto Rico investment companies would have three years to come into compliance if they were newly subject to the 1940 Act  Further, under that legislation, after three years, investment companies in Puerto Rico could also request an additional three years to come into compliance  Regarding affiliated company restrictions, SEC has previously waived some requirements for investment companies if they are unable to obtain financing by selling securities to unaffiliated parties with an agreement to repurchase those securities at a higher price in the future, known as repurchase agreements  According to SEC staff, SEC would consider allowing companies in Puerto Rico to enter into reverse repurchase agreements with their affiliates if the 1940 Act applied to them  To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, Congress could remove the triple tax exemption for Puerto Rico’s municipal securities  This action would mean that interest income from Puerto Rico municipal securities earned by investors residing outside of Puerto Rico could be taxed by states and local governments, while still being exempt from federal income taxes, similar to the current tax treatment of municipal bond income in the states  As mentioned previously, former Puerto Rico officials and experts in municipal securities told us that the triple tax exemption fueled investor demand and enabled Puerto Rico to continue issuing bonds despite deteriorating financial conditions  Some of the demand for Puerto Rico municipal securities came from certain U S  municipal bond funds  These funds concentrated their investments in one state to sell to investors within that state, but also included Puerto Rico bonds in their portfolios  Puerto Rico bond yields generally were higher than state bonds yields, according to industry experts  When added to a fund, the higher yields from Puerto Rico bonds would increase the overall return on investment yield of a fund  Modifying the triple tax exemption for Puerto Rico’s municipal securities might result in reduced demand for Puerto Rico’s debt  In response to reduced demand for its debt, Puerto Rico’s government may need to address any projected operating deficits by decreasing spending, raising revenues, or both  According to U S  Treasury officials, this action could increase the proportionate share of investors in Puerto Rico debt that reside in Puerto Rico, because of reduced demand from investors in the states  In the event of a future debt crisis, this could result in a concentration of financial losses within Puerto Rico  Also, debt financing allows governments to make needed capital investments and provides liquidity to governments, and can be a more stable funding source to manage fiscal stress  Reduced market demand for Puerto Rico’s bonds could make access to debt financing difficult, as the Puerto Rico bond market may not support the Puerto Rico government’s future borrowing at reasonable interest rates, according to Treasury officials  Alternately, a variant of this action would be to retain the triple tax exemption for Puerto Rico debt only for bonds related to capital investments rather than for deficit financing, according to Treasury officials  Various provisions in PROMESA were intended to help Puerto Rico improve its fiscal condition  PROMESA requires that the Oversight Board certify fiscal plans for achieving fiscal responsibility and access to capital markets  The intent of the fiscal plans is to eliminate Puerto Rico’s structural deficits; create independent revenue estimates for the budget process; and improve Puerto Rico’s fiscal governance, accountability, and controls, among other things  From March 2017 to April 2017, the Oversight Board certified the fiscal plans the Government of Puerto Rico developed for the primary government and certain component units, such as PREPA  As a result of the effects of Hurricanes Irma and Maria, the Oversight Board requested that the Government develop updated fiscal plans  Although the Government of Puerto Rico developed and submitted updated fiscal plans, the Oversight Board did not certify them, with the exception of the plan for GDB  Instead, in April 2018, the Oversight Board certified fiscal plans it developed itself, as PROMESA allows  PROMESA also requires the Oversight Board to determine whether or not Puerto Rico’s annual budgets, developed by the Governor, comply with the fiscal plans prior to being submitted to Puerto Rico’s legislature for approval  Technical assistance is another area where the federal government has taken action to help Puerto Rico address its fiscal condition  In 2015, Congress first authorized Treasury to provide technical assistance to Puerto Rico, and has continued to reauthorize the technical assistance, most recently through September 30, 2018  For example, Treasury officials told us that they helped Puerto Rico’s Planning Board develop a more accurate macroeconomic forecast, which should enable Hacienda to develop more accurate revenue estimates and receipt forecasts  Treasury officials also told us that the agency began helping Puerto Rico improve its collection of delinquent taxes—for example, by helping Hacienda develop an office dealing with Puerto Rico’s largest and most sophisticated taxpayers, which are often multinational corporations  With Puerto Rico focused on hurricane recovery efforts, Treasury and the Puerto Rico government are reassessing the types of assistance that Treasury might provide in the future, according to Treasury officials  Current and former Puerto Rico government officials and experts on Puerto Rico’s economy also told us that the federal government could further help Puerto Rico address its persistent deficits through federal policy changes that are fiscal in nature  For example, it could change select federal program funding rules—at a cost to the federal government—such as eliminating the cap on Medicaid funding and calculating the federal matching rate similar to how the rate is calculated in the states  Likewise, the Congressional Task Force on Economic Growth in Puerto Rico (Congressional Task Force), as established by PROMESA, issued a report in December 2016 that recommended changes to federal laws and programs that would spur sustainable long- term economic growth in Puerto Rico, among other recommendations  In addition to federal actions that could address the factors that contributed to Puerto Rico’s fiscal condition and debt levels, the Puerto Rico government plans to take various actions  For example, according to current Puerto Rico officials and the Puerto Rico government’s April 2018 fiscal plan, the government is: Planning to implement an integrated new information technology system for financial management, to include modernized revenue management and accounting and payroll systems  Hacienda officials stated that they are in the process of developing a project schedule for this long-term effort  Developing a new public healthcare model in which Puerto Rico’s government pays for basic services and patients pay for premium services  The government will begin implementing the new healthcare model in fiscal year 2019 and expects to achieve annual savings of $841 million by fiscal year 2023  Collaborating with the private sector for future infrastructure and service projects, including for reconstruction efforts related to Hurricanes Irma and Maria, which it expects will stimulate Puerto Rico’s weakened economy  We also asked Puerto Rico officials about progress made toward addressing many of the factors we identified  However, they did not provide us this information  We provided a draft of this report for review to Treasury, SEC, the Federal Reserve Bank of New York, the Government of Puerto Rico, and the Oversight Board  Treasury and SEC provided technical comments, which we incorporated as appropriate  The Federal Reserve Bank of New York and the Oversight Board had no comments  We received written comments from the Government of Puerto Rico, which are reprinted in appendix II  In its comments, the Government of Puerto Rico generally agreed with the factors we identified that contributed to Puerto Rico’s financial condition and levels of debt  It also provided additional context on Puerto Rico’s accumulation of debt, such as Puerto Rico’s territorial status and its effect on federal programs in Puerto Rico and outmigration  The Government of Puerto Rico also noted that the federal actions we identified to address factors contributing to Puerto Rico’s unsustainable debt levels did not include potential actions that were fiscal in nature or that addressed Puerto Rico’s long-term economic viability  As we note in the report, we excluded fiscal actions from our scope, consistent with the provision in PROMESA that was the statutory requirement for this work  We excluded potential actions that could promote economic growth in Puerto Rico because these actions would address debt levels in Puerto Rico only indirectly and because the Congressional Task Force on Economic Growth in Puerto Rico already recommended actions for fostering economic growth in Puerto Rico in its December 2016 report  We are sending copies of the report to the appropriate congressional committees, the Government of Puerto Rico, the Secretary of the Treasury, the Chairman of the Securities and Exchange Commission, and other interested parties  In addition, this report is available at no charge on the GAO website at http://gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-6806 or krauseh@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix III  Our objectives were to describe (1) the factors that contributed to Puerto Rico’s financial condition and levels of debt; and (2) federal actions that could address the factors that contributed to Puerto Rico’s financial condition and levels of debt  Consistent with the provision in the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) that was the statutory requirement for this work, we focused on actions that would not increase the federal deficit  For both objectives we interviewed current Puerto Rico officials from several agencies—the Puerto Rico Department of Treasury (Hacienda in Spanish), Government Development Bank for Puerto Rico (GDB), the Puerto Rico Office of Management and Budget (Spanish acronym OGP), Fiscal Agency and Financial Advisory Authority (FAFAA), and the Puerto Rico Electric Power Authority  We also interviewed 13 former Puerto Rico officials that held leadership positions at Hacienda, GDB, or OGP, or a combination thereof  These former officials served between 1997 and 2016 for various gubernatorial administrations associated with the two political parties in Puerto Rico that held the governorship during that period  We also interviewed officials from the U S  Department of the Treasury (Treasury), the Securities and Exchange Commission (SEC), the Federal Reserve Bank of New York, and the Financial Oversight and Management Board for Puerto Rico (created by PROMESA)  Additionally, we conducted another 13 interviews with experts on Puerto Rico’s economy, the municipal securities markets, state and territorial budgeting and debt management—including credit rating agencies—and with select industry groups in Puerto Rico  We selected the experts we interviewed based on their professional knowledge closely aligning with our engagement objectives, as demonstrated through published articles, congressional testimonies, and referrals from agency officials or other experts  To describe the factors that contributed to Puerto Rico’s financial condition and levels of debt, we reviewed our prior work related to Puerto Rico’s financial condition and levels of public debt  We also collected and analyzed additional financial data from Puerto Rico’s audited financial statements for the fiscal years 2002 to 2014, the last year for which audited financial statements were available  To determine how the Puerto Rico government used bond proceeds, we reviewed a nongeneralizable sample of Puerto Rico bonds prospectuses issued between 2000 and 2017 from the Electronic Municipal Market Access database of the Municipal Securities Rulemaking Board  We reviewed literature—including academic reports, congressional hearing transcripts, and credit rating agency reports—that described Puerto Rico’s economy and factors that contributed to Puerto Rico’s levels of debt  We also reviewed credit rating agency reports that described Puerto Rico’s municipal debt and the agencies’ methodologies for rating municipal debt  We also collected and reviewed Puerto Rico government documents related to budget formulation and execution, debt issuance, and financial management  We considered factors to include, but not be limited to, macroeconomic trends, federal policies, and actions taken by Puerto Rico government officials  Our review focused largely, though not exclusively, on conditions that contributed to the debt crisis during those years for which we collected financial data on Puerto Rico, fiscal years 2002 to 2014  Finally, we also conducted a thematic analysis of the summaries of our interviews to identify common patterns and ideas  Although these results are not generalizable to all current and former officials and experts with this subject-matter expertise, and do not necessarily represent the views of all the individuals we interviewed, the thematic analysis provided greater insight and considerations for the factors we identified  To describe federal actions that could address the factors that contributed to Puerto Rico’s financial condition and levels of debt, we reviewed our prior reports and documents from Treasury and SEC, conducted a literature review, and conducted various interviews  Specifically, we met with federal agencies with subject-matter expertise or whose scope of responsibilities related to these actions, as well as with current and former Puerto Rico officials and municipal securities experts  Consistent with PROMESA, we omitted from our scope: (1) actions that could increase the federal deficit (i e , fiscal options), (2) actions that could be taken by the Puerto Rico government, (3) actions that could infringe upon Puerto Rico’s sovereignty and constitutional parameters, and (4) actions that would imperil America’s homeland and national security  We considered actions that could promote economic growth in Puerto Rico as outside of scope, as they could address debt levels in Puerto Rico indirectly, rather than directly, and because a study issued by the Congressional Task Force on Economic Growth in Puerto Rico already identified actions that Congress and executive agencies could take to foster economic growth in Puerto Rico  We also considered actions that could address Puerto Rico’s unfunded pension liability as outside of our scope  The actions we identified may also help avert future unsustainable debt levels in other territories; however, we did not assess whether and how each action would apply to other territories  We conducted this performance audit from January 2017 to May 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  In addition to the contact named above, Jeff Arkin (Assistant Director), Amy Radovich (Analyst in Charge), Pedro Almoguera, Karen Cassidy, Daniel Mahoney, A J  Stephens, and Justin Snover made significant contributions to this report 

ground_truth: The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), was created by the National Housing Act of 1934. FHA insures private lenders against the possibility of borrowers defaulting on mortgages that meet certain criteria, thereby expanding the availability of mortgage credit beyond what may be available otherwise. If the borrower defaults on the mortgage, FHA is to repay the lender the remaining amount owed. A household that obtains an FHA-insured mortgage must meet FHA's eligibility and underwriting standards, including showing that it has sufficient income to repay a mortgage. FHA requires a minimum down payment of 3.5% from most borrowers, which is lower than the down payment required for many other types of mortgages. FHA-insured mortgages cannot exceed a statutory maximum mortgage amount, which varies by area and is based on area median house prices but cannot exceed a specified ceiling in high-cost areas. (The ceiling is set at $726,525 in high-cost areas in calendar year 2019.) Borrowers are charged fees, called mortgage insurance premiums, in exchange for the insurance. In FY2018, FHA insured over 1 million new mortgages (including both home purchase and refinance mortgages) with a combined principal balance of $209 billion. FHA's share of the mortgage market tends to vary with economic conditions and other factors. In the aftermath of the housing market turmoil that began around 2007 and a related contraction of mortgage lending, FHA insured a larger share of mortgages than it had in the preceding years. Its overall share of the mortgage market increased from about 3% in calendar year 2005 to a peak of 21% in 2009. Since that time, FHA's share of the mortgage market has decreased somewhat, though it remains higher than it was in the early 2000s. In calendar year 2017, FHA's overall share of the mortgage market was about 17%. FHA-insured mortgages, like all mortgages, experienced increased default rates during the housing downturn that began around 2007, leading to concerns about the stability of the FHA insurance fund for single-family mortgages, the Mutual Mortgage Insurance Fund (MMI Fund). In response to these concerns, FHA adopted a number of policy changes in an attempt to limit risk to the MMI Fund. These changes have included raising the fees that it charges and making changes to certain eligibility criteria for FHA-insured loans.

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



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

Report 1: The Federal Housing Administration (FHA) is an agency of the Department of Housing and Urban Development (HUD) that insures private mortgage lenders against the possibility of borrowers defaulting on certain mortgage loans  If a mortgage borrower defaults on a mortgage—that is, does not repay the mortgage as promised—and the home goes to foreclosure, FHA is to pay the lender the remaining amount that the borrower owes  FHA insurance protects the lender, rather than the borrower, in the event of borrower default; a borrower who defaults on an FHA-insured mortgage will still experience the consequences of foreclosure  To be eligible for FHA insurance, the mortgage must be originated by a lender that has been approved by FHA, and the mortgage and the borrower must meet certain criteria  FHA is one of three government agencies that provide insurance or guarantees on certain home mortgages made by private lenders, along with the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA)  Of these federal mortgage insurance programs, FHA is the most broadly targeted  Unlike VA- and USDA-insured mortgages, the availability of FHA-insured mortgages is not limited by factors such as veteran status, income, or whether the property is located in a rural area  However, the availability or attractiveness of FHA-insured mortgages may be limited by other factors, such as the maximum mortgage amount that FHA will insure, the fees that it charges for insurance, and its eligibility standards  This report provides background on FHA's history and market role and an overview of the basic eligibility and underwriting criteria for FHA-insured home loans  It also provides data on the number and dollar volume of mortgages that FHA insures, along with data on FHA's market share in recent years  It does not go into detail on the financial status of the FHA mortgage insurance fund  For information on FHA's financial position, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund)   The Federal Housing Administration was created by the National Housing Act of 1934, during the Great Depression, to encourage lending for housing and to stimulate the construction industry  Prior to the creation of FHA, few mortgages exceeded 50% of the property's value and most mortgages were written for terms of five years or less  Furthermore, mortgages were typically not structured to be fully repaid by the end of the loan term; rather, at the end of the five-year term, the remaining loan balance had to be paid in a lump sum or the mortgage had to be renegotiated  During the Great Depression, lenders were unable or unwilling to refinance many of the loans that became due  Thus, many borrowers lost their homes through foreclosure, and lenders lost money because property values were falling  Lenders became wary of the mortgage market  FHA institutionalized a new idea: 20-year mortgages on which the loan would be completely repaid at the end of the loan term  If borrowers defaulted, FHA insured that the lender would be fully repaid  By standardizing mortgage instruments and setting certain standards for mortgages, the creation of FHA was meant to instill confidence in the mortgage market and, in turn, help to stimulate investment in housing and the overall economy  Eventually, lenders began to make long-term mortgages without FHA insurance if borrowers made significant down payments  Over time, 15- and 30-year mortgages have become standard mortgage products  When the Department of Housing and Urban Development (HUD) was created in 1965, FHA became part of HUD  Today, FHA is intended to facilitate access to affordable mortgages for some households who otherwise might not be well-served by the private market  Furthermore, it facilitates access to mortgages during economic or mortgage market downturns by continuing to insure mortgages when the availability of mortgage credit has otherwise tightened  For this reason, it is said to play a "countercyclical" role in the mortgage market—that is, it tends to insure more mortgages when the mortgage market or overall economy is weak, and fewer mortgages when the economy is strong and other types of mortgages are more readily available  Some prospective homebuyers may have the income to sustain monthly mortgage payments but lack the funds to make a large down payment or otherwise have difficulty obtaining a mortgage  Borrowers with small down payments, weaker credit histories, or other characteristics that increase their credit risk might find it difficult to obtain a mortgage at an affordable interest rate or to qualify for a mortgage at all  This has raised a policy concern that some borrowers with the income to repay a mortgage might be unable to obtain affordable mortgages  FHA mortgage insurance is intended to make lenders more willing to offer affordable mortgages to these borrowers by insuring the lender against the possibility of borrower default  FHA-insured loans have lower down payment requirements than most conventional mortgages  (Conventional mortgages are mortgages that are not insured by FHA or guaranteed by another government agency, such as VA or USDA  ) Because saving for a down payment is often the biggest barrier to homeownership for first-time homebuyers and lower- or moderate-income homebuyers, the smaller down payment requirement for FHA-insured loans may allow some households to obtain a mortgage earlier than they otherwise could  (Borrowers with down payments of less than 20% could also obtain non-FHA mortgages with private mortgage insurance  See the nearby text box on "FHA and Private Mortgage Insurance ") FHA-insured mortgages also have less stringent requirements related to credit history than many conventional loans  This might make FHA-insured mortgages attractive to borrowers without traditional credit histories or with weaker credit histories, who would either find it difficult to take out a mortgage absent FHA insurance or may find it more expensive to do so  FHA-insured mortgages play a particularly large role for first-time homebuyers, low- and moderate-income households, and minorities  For example, 83% of FHA-insured mortgages made to purchase a home (rather than to refinance an existing mortgage) in FY2018 were obtained by first-time homebuyers  Over one-third of all FHA loans (both purchase and refinance loans) were obtained by minority households, and FHA-insured mortgages accounted for about 57% of all forward mortgages made to low- or moderate-income borrowers during the year  Since FHA-insured mortgages are often obtained by borrowers who cannot make large down payments or those with weaker credit histories, some have questioned whether FHA-insured mortgages are similar to subprime mortgages  Like subprime mortgages, FHA-insured mortgages are often obtained by borrowers with lower credit scores, though some borrowers with higher credit scores also obtain FHA-insured mortgages  However, FHA-insured mortgages are prohibited from carrying the full range of features that many subprime mortgages could carry  For example, FHA-insured loans must be fully documented, and they cannot include features such as negative amortization  (FHA mortgages can include adjustable interest rates ) Some of these types of features appear to have contributed to high default and foreclosure rates on subprime mortgages  Nevertheless, some have suggested that FHA-insured mortgages are too risky, and that they can harm borrowers by providing mortgages that often have a higher likelihood of default than other mortgages due to combinations of risk factors such as low down payments and lower credit scores  Traditionally, FHA plays a countercyclical role in the mortgage market, meaning that it tends to insure more mortgages when mortgage credit markets are tight and fewer mortgages when mortgage credit is more widely available  A major reason for this is that FHA continues to insure mortgages that meet its standards even during market downturns or in regions experiencing economic turmoil  When the economy is weak and lenders and private mortgage insurers tighten credit standards and reduce lending activity, FHA-insured mortgages may be the only mortgages available to some borrowers, or may have more favorable terms than mortgages that lenders are willing to make without FHA insurance  When the economy is strong and mortgage credit is more widely available, many borrowers may find it easier to qualify for affordable conventional mortgages  This section briefly describes some of the major features of FHA-insured mortgages for purchasing or refinancing a single-family home  Single-family homes are defined as properties with one to four separate dwelling units  FHA-insured loans are available to borrowers who intend to be owner-occupants and who can demonstrate the ability to repay the loan according to the terms of the contract  FHA-insured loans must be underwritten in accordance with accepted practices of prudent lending institutions and FHA requirements  Lenders must examine factors such as the applicant's credit, financial status, monthly shelter expenses, funds required for closing expenses, effective monthly income, and debts and obligations  In general, individuals who have previously been subject to a mortgage foreclosure are not eligible for FHA-insured loans for at least three years after the foreclosure  As a general rule, the applicant's prospective mortgage payment should not exceed 31% of gross effective monthly income  The applicant's total obligations, including the proposed housing expenses, should not exceed 43% of gross effective monthly income  If these ratios are not met, the borrower may be able to present the presence of certain compensating factors, such as cash reserves, in order to qualify for an FHA-insured loan  Since October 4, 2010, FHA has required a minimum credit score of 500, and has required higher down payments from borrowers with credit scores below 580 than from borrowers with credit scores above that threshold  See the " Down Payment " section for more information on down payment requirements for FHA-insured loans  In general, borrowers must intend to occupy the property as a principal residence  FHA-insured loans may be used to purchase one-family detached homes, townhomes, rowhouses, two- to four-unit buildings, manufactured homes and lots, and condominiums in developments approved by FHA  FHA-insured loans may also be obtained to build a home; to repair, alter, or improve a home; to refinance an existing home loan; to simultaneously purchase and improve a home; or to make certain energy efficiency or weatherization improvements in conjunction with a home purchase or mortgage refinance  FHA-insured mortgages may be obtained with loan terms of up to 30 years  The interest rate on an FHA-insured loan is negotiated between the borrower and lender  The borrower has the option of selecting a loan with an interest rate that is fixed for the life of the loan or one on which the rate may be adjusted annually  FHA requires a lower down payment than many other types of mortgages  Under changes made by the Housing and Economic Recovery Act of 2008 (HERA, P L  110-289 ), borrowers are required to contribute at least 3 5% in cash or its equivalent to the cost of acquiring a property with an FHA-insured mortgage  (Prior law had required borrowers to contribute at least 3% in cash or its equivalent ) Prohibited sources of the required funds include the home seller, any entity that financially benefits from the transaction, and any third party that is directly or indirectly reimbursed by the seller or by anyone that would financially benefit from the transaction  HUD has interpreted the 3 5% cash contribution as a down payment requirement and has specified that contributions toward closing costs cannot be counted toward it  Since October 4, 2010, FHA has required a 10% down payment from borrowers with credit scores between 500 and 579, while borrowers with credit scores of 580 or above are still required to make a down payment of at least 3 5%  FHA no longer insures loans made to borrowers with credit scores below 500  There is no income limit for borrowers seeking FHA-insured loans  However, FHA-insured mortgages cannot exceed a maximum mortgage amount set by law  The maximum mortgage amounts allowed for FHA-insured loans vary by area, based on a percentage of area median home prices  Different limits are in effect for one-unit, two-unit, three-unit, and four-unit properties  The limits are subject to a statutory floor and ceiling; that is, the maximum mortgage amount that FHA will insure in a given area cannot be lower than the floor, nor can it be higher than the ceiling  In 2008, Congress temporarily increased the maximum mortgage amounts in response to turmoil in the housing and mortgage markets, with the intention of allowing more households to qualify for FHA-insured mortgages during a period of tighter credit availability  New permanent maximum mortgage amounts were later established by the Housing and Economic Recovery Act of 2008  The maximum mortgage amounts established by HERA were higher than the previous permanent limits, but in many cases lower than the temporarily increased limits  However, the higher temporary limits were extended for several years, until they expired at the end of calendar year 2013  Since January 1, 2014, the maximum mortgage amounts have been set at the permanent HERA levels  For a one-unit home, HERA established the maximum mortgage amounts at 115% of area median home prices, with a floor set at 65% of the Freddie Mac conforming loan limit and a ceiling set at 150% of the Freddie Mac conforming loan limit  For calendar year 2019, the floor is $314,827 and the ceiling is $726,525  (That is, FHA will insure mortgages with principal balances up to $314,827 in all areas of the country  In higher-cost areas, it will insure mortgages with principal balances up to 115% of the area median home price, up to a cap of $726,525 in the highest-cost areas ) These maximum mortgage amounts, and the maximum mortgage amounts for 2-4 unit homes, are shown in Table 1   Borrowers of FHA-insured loans pay an up-front mortgage insurance premium (MIP) and annual mortgage insurance premiums in exchange for FHA insurance  These premiums are set as a percentage of the loan amount  The maximum amounts that FHA is allowed to charge for the annual and the upfront premiums are set in statute  However, since these are maximum amounts, HUD has the discretion to set the premiums at lower levels  The maximum up-front premium that FHA may charge is 3% of the mortgage amount, or 2 75% of the mortgage amount for a first-time homebuyer who has received homeownership counseling  Currently, FHA is charging the same up-front premiums to first-time homebuyers who receive homeownership counseling and all other borrowers  Since April 9, 2012, HUD has set the up-front premium at 1 75% of the loan amount, whether or not the borrower is a first-time homebuyer who received homeownership counseling  This premium applies to most single-family mortgages  The amount of the maximum annual premium varies based on the loan's initial loan-to-value ratio  For most loans, (1) if the loan-to-value ratio is above 95%, the maximum annual premium is 1 55% of the loan balance, and (2) if the loan-to-value ratio is 95% or below, the maximum annual premium is 1 5% of the loan balance  FHA increased the actual annual premiums that it charges several times in recent years in order to bring more money into the FHA insurance fund and ensure that it has sufficient funds to pay for defaulted loans  However, in January 2015, FHA announced a decrease in the annual premium for most single-family loans  For most FHA case numbers assigned on or after January 26, 2015, the annual premiums are 0 85% of the outstanding loan balance if the initial loan-to-value ratio is above 95% and 0 80% of the outstanding loan balance if the initial loan-to-value ratio is 95% or below  This is a decrease from 1 35% and 1 30%, respectively, which is what FHA had been charging from April 1, 2013, until January 26, 2015  These premiums apply to most single-family mortgages; FHA charges different annual premiums in certain circumstances, including for loans with shorter loan terms or higher principal balances  Table 2 shows the up-front and annual mortgage insurance premiums that have been in effect for most loans since January 26, 2015  In the past, if borrowers prepaid their loans, they may have been due refunds of part of the up-front insurance premium that was not "earned" by FHA  The refund amount depended on when the mortgage closed and declined as the loan matured  The Consolidated Appropriations Act 2005 ( P L  108-447 ) amended the National Housing Act to provide that, for mortgages insured on or after December 8, 2004, borrowers are not eligible for refunds of up-front mortgage insurance premiums except when borrowers are refinancing existing FHA-insured loans with new FHA-insured loans  After three years, the entire up-front insurance premium paid by borrowers who refinance existing FHA-insured loans with new FHA-insured loans is considered "earned" by FHA, and these borrowers are not eligible for any refunds  The annual mortgage insurance premiums are not refundable  However, beginning with loans closed on or after January 1, 2001, FHA had followed a policy of automatically cancelling the annual mortgage insurance premium when, based on the initial amortization schedule, the loan balance reached 78% of the initial property value  However, for loans with FHA case numbers assigned on or after June 3, 2013, FHA will continue to charge the annual mortgage insurance premium for the life of the loan for most mortgages  This change responded to concerns about the financial status of the FHA insurance fund  FHA has stated that, since it continues to insure the entire remaining mortgage amount for the life of the loan, and since premiums were cancelled on the basis of the loan amortizing to a percentage of the initial property value rather than the current value of the home, FHA has at times had to pay insurance claims on defaulted mortgages where the borrowers were no longer paying annual mortgage insurance premiums  An FHA-insured mortgage is considered delinquent any time a payment is due and not paid  Once the borrower is 30 days late in making a payment, the mortgage is considered to be in default  In general, mortgage servicers may initiate foreclosure on an FHA-insured loan when three monthly installments are due and unpaid, and they must initiate foreclosure when six monthly installments are due and unpaid, except when prohibited by law  A program of loss mitigation strategies was authorized by Congress in 1996 to minimize the number of FHA loans entering foreclosure, and has since been revised and expanded to include additional loss mitigation options  Prior to initiating foreclosure, mortgage servicers must attempt to make contact with borrowers and evaluate whether they qualify for any of these loss mitigation options  The options must be considered in a specific order, and specific eligibility criteria apply to each option  Some loss mitigation options, referred to as home retention options, are intended to help borrowers remain in their homes  Other loss mitigation options, referred to as home disposition options, will result in the borrower losing his or her home, but avoiding some of the costs of foreclosure  The loss mitigation options that servicers are instructed to pursue on FHA-insured loans are summarized in Table 3   Additional loss mitigation options are available for certain populations of borrowers  For example, defaulted borrowers in military service may be eligible to suspend the principal portion of monthly payments and pay only interest for the period of military service, plus three months  On resumption of payment, loan payments are adjusted so that the loan will be paid in full according to the original amortization  Certain loss mitigation options are also available in areas affected by presidentially declared major disasters  FHA's single-family mortgage insurance program is funded through FHA's Mutual Mortgage Insurance Fund (MMI Fund)  Cash flows into the MMI Fund primarily from insurance premiums and proceeds from the sale of foreclosed homes  Cash flows out of the MMI Fund primarily to pay claims to lenders for mortgages that have defaulted  This section provides a brief overview of (1) how the FHA-insured mortgages insured under the MMI Fund are accounted for in the federal budget and (2) the MMI Fund's compliance with a statutory capital ratio requirement  For more detailed information on the financial status of the MMI Fund, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund)   The Federal Credit Reform Act of 1990 (FCRA) specifies the way in which the costs of federal loan guarantees, including FHA-insured loans, are recorded in the federal budget  The FCRA requires that the estimated lifetime cost of guaranteed loans (in net present value terms) be recorded in the federal budget in the year that the loans are insured  When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in more money coming into the account than flowing out of it, the program is said to generate negative credit subsidy  When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in less money coming into the account than flowing out of it, the program is said to generate positive credit subsidy  Programs that generate negative credit subsidy result in offsetting receipts for the federal government, while programs that generate positive credit subsidy require an appropriation to cover the cost of new loan guarantees  The MMI Fund has historically been estimated to generate negative credit subsidy in the year that the loans are insured and therefore has not required appropriations to cover the expected costs of loans to be insured  The MMI Fund does receive appropriations to cover salaries and administrative contract expenses  The amount of money that loans insured in a given year actually earn for or cost the government over the course of their lifetime is likely to be different from the original credit subsidy estimates  Therefore, each year as part of the annual budget process, each prior year's credit subsidy rates are re-estimated based on the actual performance of the loans and other factors, such as updated economic projections  These re-estimates affect the way in which funds are held in the MMI Fund's two primary accounts: the Financing Account and the Capital Reserve Account  The Financing Account holds funds to cover  expected  future costs of FHA-insured loans  The Capital Reserve Account holds additional funds to cover any additional unexpected future costs  Funds are transferred between the two accounts each year on the basis of the re-estimated credit subsidy rates to ensure that enough is held in the Financing Account to cover updated projections of expected costs of insured loans   If FHA ever needs to transfer more funds to the Financing Account than it has in the Capital Reserve Account, it can receive funds from Treasury to make this transfer under existing authority and without any additional congressional action  This occurred for the first time at the end of FY2013, when FHA received $1 7 billion from Treasury to make a required transfer of funds between the accounts  The funds that FHA received from Treasury did not need to be spent immediately, but were to be held in the Financing Account and used to pay insurance claims, if necessary, only after the remaining funds in the Financing Account were spent  The MMI Fund has not needed any additional funds from Treasury to make required transfers of funds between the two accounts since that time  The MMI Fund is also required by statute to maintain a capital ratio of at least 2%, which is intended to ensure that the fund is able to withstand some increases in the costs of loans guaranteed under the insurance fund  The capital ratio measures the amount of funds that the MMI Fund currently has on hand, plus the net present value of the expected future cash flows associated with the mortgages that FHA currently insures (e g , the amounts it expects to earn through premiums and lose through claims paid)  It then expresses this amount as a percentage of the total dollar volume of mortgages that FHA currently insures  In other words, the capital ratio is a measure of the amount of funds that would remain in the MMI Fund after all expected future cash flows on the loans that it currently insures have been realized, assuming that FHA did not insure any more loans going forward  Beginning in FY2009, and for several years thereafter, the capital ratio was estimated to be below this mandated 2% level  The capital ratio again exceeded the 2% threshold in FY2015, when it was estimated to be 2 07%  This represented an improvement from an estimated capital ratio of 0 41% at the end of FY2014, and from negative estimated capital ratios at the ends of FY2013 and FY2012  The capital ratio has remained above 2% since that time, and was estimated to be 2 76% in FY2018  A low or negative capital ratio does not in itself trigger any special assistance from Treasury, but it raises concerns that FHA could need assistance in order to continue to hold enough funds in the Financing Account to cover expected future losses  In the years since the housing market turmoil that began around 2007, FHA has taken a number of steps designed to strengthen the insurance fund  These steps have included increasing the mortgage insurance premiums charged to borrowers; strengthening underwriting requirements, such as by instituting higher down payment requirements for borrowers with the lowest credit scores; and increasing oversight of FHA-approved lenders  The number of new mortgages insured by FHA in a given year depends on a variety of factors  In general, the number of new mortgages insured by FHA increased during the housing market turmoil (and resulting contraction of mortgage credit) that began around 2007, reaching a peak of 1 8 million mortgages in FY2009 before beginning to decrease somewhat  FY2014 was the only year since FY2007 that FHA insured fewer than 1 million new mortgages  As shown in Table 4 , FHA insured just over 1 million new single-family purchase and refinance mortgages in FY2018  Together, these mortgages had an initial loan balance of $209 billion  About 77% (776,284) of the mortgages were for home purchases, while about 23% (238,325) were for refinancing an existing mortgage  The overall number of mortgages insured by FHA in FY2018 represented a decrease from FY2017, when it insured 1 25 million mortgages  Many FHA-insured mortgages are obtained by first-time homebuyers, lower-and moderate-income homebuyers, and minority homebuyers  Of the home purchase mortgages insured by FHA in FY2018, about 83% were made to first-time homebuyers  Over a third of all mortgages (both for home purchases and refinances) insured by FHA in FY2018 were made to minority borrowers  As shown in Table 5 , at the end of FY2018 FHA was insuring a total of over 8 million single-family loans that together had an outstanding balance of nearly $1 2 trillion  Since it was first established in 1934, FHA has insured a total of over 47 5 million home loans  FHA's share of the mortgage market is the amount of mortgages that are insured by FHA compared to the total amount of mortgages originated or outstanding in a given time period  FHA's market share can be measured in a number of different ways  Therefore, when evaluating FHA's market share, it is important to recognize which of several different figures is being reported  First, FHA's share of the mortgage market can be computed as the number of FHA-insured mortgages divided by the total number of mortgages, or as the dollar volume of FHA-insured mortgages divided by the total dollar volume of mortgages  Furthermore, FHA's market share is sometimes reported as a share of all mortgages , and sometimes only as a share of home purchase mortgages (as opposed to both mortgages made to purchase a home and mortgages made to refinance an existing mortgage)  A market share figure can be reported as a share of all mortgages originated within a specific time period , such as a given year, or as a share of all mortgages outstanding at a point in time , regardless of when they were originated  Finally, FHA's market share is sometimes also reported as a share of the total number of mortgages that have some kind of mortgage insurance (including mortgages with private mortgage insurance and mortgages insured by another government agency) rather than as a share of all mortgages regardless of whether or not they have mortgage insurance  FHA's market share tends to fluctuate in response to economic conditions and other factors  Between calendar years 1996 and 2002, FHA's market share averaged about 14% of the home purchase mortgage market and about 11% of the overall mortgage market (both home purchase mortgages and refinance mortgages), as measured by number of mortgages  However, by 2005 FHA's market share had fallen to less than 5% of home-purchase mortgages and about 3% of the overall mortgage market  Subsequently, as economic conditions worsened and mortgage credit tightened in response to housing market turmoil that began around 2007, FHA's market share rose sharply, peaking at over 30% of home-purchase mortgages in 2009 and 2010, and over 20% of all mortgages (including both home purchases and refinances) in 2009  In 2017, FHA insured 19 5% of new home purchase mortgages and about 16 7% of new mortgages overall, a small decrease compared to its market share in 2016  Figure 1 shows FHA's market share as a percentage of the total number of new mortgages originated for each calendar year between 1996 and 2017  As described, FHA's market share can be measured in a number of different ways  The figure shows FHA's share of (1) all newly originated mortgages, (2) just newly originated purchase mortgages, and (3) just newly originated refinance mortgages  FHA's share of home purchase mortgages tends to be the highest, largely because borrowers who refinance are more likely to have built up a greater amount of equity in their homes and, therefore, might be more likely to obtain conventional mortgages  For the number of mortgages insured by FHA in each year calendar since 1996, see the Appendix   The increase in FHA's market share after 2007 was due to a variety of factors related to the housing market turmoil and broader economic instability that was taking place at the time  Housing and economic conditions led many banks to limit their lending activities, including lending for mortgages  Similarly, private mortgage insurance companies, facing steep losses from past mortgages, began tightening the underwriting criteria for mortgages that they would insure  Furthermore, in 2008 Congress increased the maximum mortgage amounts that FHA can insure, which may have made FHA-insured mortgages a more viable option for some borrowers in certain areas  More recently, FHA's market share has decreased somewhat from its peak during the housing market turmoil, although it generally remains somewhat higher than it was in the late 1990s and early 2000s  A number of factors may have contributed to this decrease, including lower loan limits in some high-cost areas, higher mortgage insurance premiums, and greater availability of non-FHA-insured mortgages  While not the focus of this report, the appropriate market share for FHA has been a subject of ongoing debate among policymakers  It is likely to continue to be a topic of debate, both in the context of policies specifically related to FHA as well as part of broader debate about the future of the U S  housing finance system  Table A-1 provides data on the number of mortgages insured by FHA in each calendar year since 1996, along with FHA's overall market share in each calendar year 


Report 2: The minority leader of the modern House is the head of the "loyal opposition " As the minority party's nominee for Speaker at the start of a new Congress, the minority leader traditionally hands the gavel to the Speaker-elect, who is usually elected on a straight party-line vote  The speakership election illustrates the main problem that confronts the minority leader: the subordinate status of the minority party in an institution noted for majority rule  As David Bonior, D-MI, explained: "This body, unlike the other, operates under the principle that a determined majority should be allowed to work its will while protecting the rights of the minority to be heard " Minority party lawmakers are certain to be heard, but whether they will be heeded is sometimes another matter  Thus, the uppermost goal of any minority leader is to recapture majority control of the House  The minority leader is elected every two years by secret ballot of his or her party caucus or conference  These party leaders are typically experienced lawmakers when they win election to this position  The current minority leader, Kevin McCarthy, R-CA, served 12 years in the House, including as majority leader, prior to assuming his current role (a position he also held during his time in the California state assembly)  Speaker Nancy Pelosi, D-CA, served in the House for 16 years when she first became minority leader in the 108 th Congress (2003-2004)  Following her first tenure as Speaker from 2007 to 2010, Pelosi was again elected minority leader in the 112 th Congress (2011-2012), at which point she was a 24-year veteran of the House  When her predecessor, John Boehner, R-OH, was elected minority leader in the 110 th Congress (2007-2008), he had served in the House for 18 years including as majority leader, committee chair (Education and the Workforce), and, prior to that, chair of the Republican Conference  Richard Gephardt, D-MO, began his tenure as minority leader in the 104 th Congress (1995-1996) as an 18-year House veteran and a former majority leader and chair of the Democratic Caucus  Gephardt's predecessor, Robert Michel, R-IL, became minority leader in 1981 after 24 years in the House  Much like his successors, John Rhodes, R-AZ, had served in the House for 20 years when he was elected minority leader in 1973  While the position itself is usually occupied by Members with significant House experience, the roles and responsibilities of the minority leader are not well-defined  To a large extent, the duties of the minority leader are based on tradition and custom  Representative Bertrand Snell, R-NY, minority leader from 1931 to 1938, described the position in the following way: He is spokesman for his party and enunciates its policies  He is required to be alert and vigilant in defense of the minority's rights  It is his function and duty to criticize constructively the policies and programs of the majority, and to this end employ parliamentary tactics and give close attention to all proposed legislation  Since Snell's description, other responsibilities have been added to the job  Broadly speaking, the role of the minority leader in the contemporary Congress is twofold: to serve as the leader and spokesperson for the minority party, and to participate in certain institutional prerogatives afforded to Members in the minority  How the minority leader handles these responsibilities is likely to depend on a variety of elements, including personality and contextual factors; the size and cohesion of the minority party; whether or not the party controls the White House; the general political climate both inside and outside the House; and expectations of the party's performance in upcoming elections  The next section of the report discusses the historical origin of this position, and the sections that follow take account of the various party and institutional responsibilities of the minority leader  To a large extent, the position of minority leader is a late-19 th -century innovation  Prior to this time congressional parties were often relatively disorganized, so it was not always evident who functioned as the opposition floor leader  Decades went by before anything like our modern two-party congressional system emerged on Capitol Hill with official titles for those who were selected as party leaders  However, from the beginning days of Congress, various House Members intermittently assumed the role of "opposition leader " Some scholars suggest that Representative James Madison of Virginia informally functioned as the first "minority leader" because in the First Congress he led the opposition to Treasury Secretary Alexander Hamilton's fiscal policies  During this early period, it was common for neither major party grouping (Federalists and Republicans) to have an official leader  In 1813, for instance, a scholar recounts that the Federalist minority of 36 Members needed a committee of 13 "to represent a party comprising a distinct minority" and "to coordinate the actions of men who were already partisans in the same cause " In 1828, a foreign observer of the House offered this perspective on the absence of formal party leadership on Capitol Hill: I found there were absolutely no persons holding the stations of what are called, in England, Leaders, on either side of the House     It is true, that certain members do take charge of administration questions, and certain others of opposition questions; but all this so obviously without concert among themselves, actual or tacit, that nothing can be conceived less systematic or more completely desultory, disjointed  Internal party disunity compounded the difficulty of identifying lawmakers who might have informally functioned as a minority leader  For instance, "seven of the fourteen speakership elections from 1834 through 1859 had at least twenty different candidates in the field  Thirty-six competed in 1839, ninety-seven in 1849, ninety-one in 1859, and 138 in 1855 " With so many candidates competing for the speakership, it is not at all clear that one of the defeated lawmakers then assumed the mantle of "minority leader " The Democratic minority from 1861 to 1875 was so completely disorganized that they did not "nominate a candidate for Speaker in two of these seven Congresses and nominated no man more than once in the other five  The defeated candidates were not automatically looked to for leadership " In the judgment of one congressional scholar, since 1883 "the candidate for Speaker nominated by the minority party has clearly been the Minority Leader " However, this assertion is subject to dispute  On December 3, 1883, the House elected Democrat John G  Carlisle of Kentucky as Speaker  Republicans nominated J  Warren Keifer of Ohio, who was Speaker the previous Congress  But Keifer was viewed by his colleagues as a discredited leader in part because as Speaker he arbitrarily handed out "choice jobs to close relatives     all at handsome salaries " Keifer received "the empty honor of the minority nomination  But with it came a sting—for while this naturally involves the floor leadership, he was deserted by his [party] associates and his career as a national figure terminated ingloriously " Representative Thomas Reed, R-ME, who later became Speaker, assumed the de facto role of minority floor leader in Keifer's stead  "[A]lthough Keifer was the minority's candidate for Speaker, Reed became its acknowledged leader, and ever after, so long as he served in the House, remained the most conspicuous member of his party " Although congressional historians disagree as to the exact time period when the minority leadership emerged officially as a party position, it seems safe to conclude that the position was established during the latter part of the 19 th century  This era was "marked by strong partisan attachments, resilient patronage-based party organizations, and     high levels of party voting in Congress " These conditions were conducive to the establishment of a more highly differentiated House leadership structure in which Members assumed more specialized roles within the institution  (See the Appendix for a list of House minority leaders selected since 1899 ) One other historical point merits brief mention  Until the 61 st Congress (1909-1910), "it was the custom to have the minority leader also serve as the ranking minority member on the two most powerful committees, Rules and Ways and Means " Today, the minority leader no longer serves on these committees but does chair the Republican Steering Committee, a party leadership committee responsible for making recommendations to the Conference regarding the committee assignments of House Republicans  The minority leader has a number of formal and informal party responsibilities  Formally, the rules of each party specify certain roles and responsibilities for their leader  For example, under Republican Conference rules for the 116 th Congress (2019-2020), the minority leader nominates party members to the Committees on Rules and House Administration, subject to Conference approval  Republican Conference rules also authorize the minority leader to appoint a "Leadership Member" to the Committee on the Budget who "will serve as the second highest-ranking Republican on the committee," and to "recommend to the House all Republican Members of such joint, select, and ad hoc committees as shall be created by the House, in accordance with law " Beyond their formal responsibilities, minority leaders are expected to handle a wide range of informal party assignments  Lewis Deschler, a former House Parliamentarian (1928-1974), summarized the diverse duties of a party's floor leader: A party's floor leader, in conjunction with other party leaders, plays an influential role in the formulation of party policy and programs  He is instrumental in guiding legislation favored by his party through the House, or in resisting those programs of the other party that are considered undesirable by his own party  He is instrumental in devising and implementing his party's strategy on the floor with respect to promoting or opposing legislation  He is kept constantly informed as to the status of legislative business and as to the sentiment of his party respecting particular legislation under consideration  Such information is derived in part from the floor leader's contacts with his party's members serving on House committees, and with the members of the party's whip organization  These and several other party roles merit further discussion because they influence significantly the minority leader's overarching objective: to retake majority control of the House  "I want to get [my] members elected and win more seats," said former Minority Leader Richard Gephardt, D-MO  "That's what [my party colleagues] want to do, and that's what they want me to do " Five activities illustrate how minority leaders seek to accomplish this primary goal  Minority leaders are typically energetic and aggressive campaigners for party incumbents and challengers  For example, they assist in recruiting qualified and competitive candidates; they establish "leadership PACs" to raise and distribute funds to House candidates of their party; they encourage party colleagues not to retire or run for other offices so as to limit the number of open seats the party would need to defend; they coordinate their campaign activities with congressional and national party campaign committees; they encourage outside groups to back their candidates; they travel around the country to speak on behalf of party candidates; and they encourage incumbent colleagues to make significant financial contributions to the party's campaign committee  In the weeks leading up to the 2018 congressional elections, for instance, Minority Leader Pelosi was actively campaigning for Democratic incumbents and challengers: With 21 days until the midterm elections, the California Democrat and House minority leader is crisscrossing the country fundraising and rallying the Democratic troops—and plotting her return to the speakership     In the third quarter [of 2018], Pelosi will report raising $34 2 million for Democrats, including $30 5 million for the DCCC [Democratic Congressional Campaign Committee]  She is by far the biggest source of cash for House Democrats and House Democratic candidates  The minority leader, in consultation with other party colleagues, has a range of strategic options that can be employed to advance minority party objectives  The options selected depend on a wide range of circumstances, such as the visibility or significance of the issue and the relative degree of cohesion within the majority and minority parties  For instance, a majority party riven by internal dissension—as occurred during the early 1900s when "progressive" and "regular" Republicans were at loggerheads, or beginning in the late 1930s when a "conservative coalition" of Southern Democrats and like-minded Republicans emerged—may provide the minority leader with greater opportunities to achieve party priorities than if the majority party exhibited high degrees of party cohesion (and could simply outvote the minority)  Among the variable strategies available to the minority party, which can vary from bill to bill and be used in combination or at different stages of the lawmaking process, are the following: Cooperation   The minority party supports and cooperates with the majority party in building winning coalitions on the floor  Inconsequential Opposition   The minority party offers opposition, but it is of marginal significance, typically because the minority is so small  Withdrawal   The minority party chooses not to take a position on an issue, perhaps because of intraparty divisions or to spotlight divisions within the majority party  Innovation   The minority party develops alternatives and agendas of its own and attempts to construct winning coalitions on their behalf  Partisan Opposition   The minority party offers strong opposition to majority party initiatives, but does not counter with policy alternatives of their own  Participation   The minority party is in the position of having to consider the views and proposals of a same-party President and to assess their majority-building role with respect to the President's priorities  A look at one minority leadership strategy—partisan opposition—may suggest why it might be employed in specific circumstances  The purposes of obstruction are several, such as frustrating the majority party's ability to govern or attracting media attention to the alleged ineffectiveness of the majority party  "We know how to delay," remarked Minority Leader Gephardt  Dilatory motions to adjourn, appeals of the presiding officer's ruling, or numerous requests for roll call votes, including on noncontroversial items like approving the House Jou rnal , are standard time-consuming parliamentary tactics  By stalling action on the majority party's agenda, the minority leader may be able to launch a campaign against a "do-nothing Congress" and convince enough voters to elevate the party to the House majority  To be sure, the minority leader recognizes that outright opposition carries risks  As a congressional scholar explains, "A program of consistent opposition to majority party proposals and a refusal to engage in compromise, while electorally valuable, means forsaking policy gains that may otherwise have been achieved " Another important aim of the minority leader is to develop an electorally attractive agenda of ideas and proposals that unites party members and appeals to core electoral supporters as well as independents and swing voters  Despite the minority leader's limited ability to set the House's agenda, there are still opportunities to raise minority priorities  For example, the minority leader may file discharge petitions in an effort to bring minority priorities to the floor  If the required 218 signatures on a discharge petition can be obtained—a number that demands at least some support from the majority—minority initiatives can be brought to the floor even despite opposition from the majority leadership or the committee(s) of jurisdiction (or both)  As a GOP minority leader explained, the challenge here is to "keep our people together, and to look for votes on the other side " Minority leaders may engage in a range of activities to publicize their party's priorities and to criticize those of the opposition  For instance, to keep their party colleagues "on message," they ensure that their party colleagues are sent packets of suggested press releases or "talking points" for constituent meetings in their districts; they help to organize "town hall meetings" in Members' districts around the country to publicize the party's agenda or a specific priority, such as health care or tax reform; they sponsor party "retreats" to discuss issues and assess the party's public image; they create "theme teams" to craft party messages that might be conveyed during the one-minute, morning hour, or special order period in the House; they conduct surveys of party colleagues to discern their policy preferences; they establish websites and Twitter feeds to highlight party priorities; they organize task forces or issue teams to formulate party programs and to develop strategies for communicating these programs to the public; and they appear on various media programs or write newspaper articles to win public support for the party's agenda  House minority leaders also hold joint news conferences with party colleagues and consult with their counterparts in the Senate  The overall objectives are to develop a coordinated communications strategy, to share ideas and information, and to present a united front on issues  Minority leaders also make floor speeches and may close debate for their side on major issues before the House  They must also be prepared "to debate on the floor, ad lib , no notes, on a moment's notice," remarked Minority Leader Michel  In brief, minority leaders are key strategists in developing and promoting the party's agenda and in outlining ways to respond to the opposition's arguments and proposals  A "Dear Colleague" letter delivered to House Democratic offices ahead of the August 2018 recess illustrates the point  In the letter, Minority Leader Pelosi outlined the party's agenda and provided this guidance to her Democratic colleagues: A key part of our For The People agenda is to clean up corruption to make Washington work for the American people     To honor the pledge of our For The People agenda, a Democratic majority will swiftly act to pass tougher ethics and campaign finance laws and crack down on the conduct that has poisoned the GOP Congress and the Trump Administration     In district events and on social media, we must drive home the clear contrast between the corruption of the GOP Congress and the better deal that Democrats are offering the American people  We will own August with strength, confidence and clarity, as we make our case to the American people  If his or her party controls the White House, the minority leader confers regularly with the President and his aides about issues before Congress, the Administration's agenda, and political events generally  Strategically, the role of the minority leader will vary depending on whether the President is of the same party or the other party  In general, minority leaders will work to advance the goals and aspirations of their party's President in Congress  When Robert Michel, R-IL, was minority leader (1981-1994), he typically functioned as the "point man" for Republican Presidents  President Ronald Reagan's 1981 policy successes in the Democratic-controlled House were due in no small measure to Minority Leader Michel's effectiveness in wooing so-called "Reagan Democrats" to support, for instance, the Administration's landmark budget reconciliation bill  There are occasions, of course, when minority leaders will fault the legislative initiatives of their President  On an Administration proposal that could adversely affect his district, Michel stated that he might "abdicate my leadership role [on this issue] since I can't harmonize my own views with the administration's " Minority Leader Gephardt publicly opposed a number of President Clinton's legislative initiatives, from "fast track" trade authority to various budget issues, and Minority Leader Pelosi came out against a multilateral trade agreement with Asian-Pacific countries negotiated by the Obama White House  When the President and House majority are of the same party, then the House minority leader assumes a larger role in formulating alternatives to executive branch initiatives and in acting as a national spokesperson for his or her party  "As Minority Leader during [President Lyndon Johnson's] Democratic administration, my responsibility has been to propose Republican alternatives," said Minority Leader Gerald Ford, R-MI  Greatly outnumbered in the House, Minority Leader Ford devised a political strategy that allowed Republicans to offer their alternatives in a manner that provided them political protection  As Ford explained, We used a technique of laying our program out in general debate  When we got to the amendment phase, we would offer our program as a substitute for the Johnson proposal  If we lost in the Committee of the Whole, then we would usually offer it as a motion to recommit and get a vote on that  And if we lost on the motion to recommit, our Republican members had a choice: They could vote against the Johnson program and say we did our best to come up with a better alternative  Or they could vote for it and make the same argument  Usually we lost; but when you're only 140 out of 435, you don't expect to win many  Ford also teamed with Senate Minority Leader Everett McKinley Dirksen, R-IL, to act as national spokesmen for their party  They held a press conference every Thursday following the weekly joint leadership meeting, a tradition that began with Ford's predecessor as minority leader, Charles Halleck, R-IN  When Minority Leaders Dirksen and Halleck appeared together they were dubbed the "Ev and Charlie Show" by the press, and the "Republican National Committee budgeted $30,000 annually to produce the weekly news conference " Minority status, by itself, is often an important inducement for minority party members to stay together, to accommodate different interests, and to submerge intraparty factional disagreements  To hold a diverse membership together often requires extensive consultations and discussions with rank-and-file Members and with different factional groupings  As Minority Leader Gephardt said, We have weekly caucus meetings  We have daily leadership meetings  We have weekly ranking Member meetings  We have party effectiveness meetings  There's a lot more communication  I believe leadership is bottom up, not top down  I think you have to build policy and strategy and vision from the bottom up, and involve people in figuring out what that is  Gephardt added that "inclusion and empowerment of the people on the line have to be done to get the best performance" from the minority party  Other techniques for fostering party harmony include the appointment of task forces composed of party colleagues with conflicting views to reach consensus on issues; daily meetings in the l eader's office (or at breakfast, lunch, or dinner) to lay out floor strategy or political objectives for the minority party; periodic retreats to allow party members to discuss issues and interact with one another outside the confines of Capitol Hill; and the creation of new leadership positions as a way to reach out and involve a greater diversity of party members in the leadership structure  Beyond the party responsibilities of the minority leader are a number of institutional obligations associated with their position as a top House official  Many of these assignments or roles are spelled out in the standing rules of the House, while others have devolved upon the position in other ways  To be sure, the minority leader is provided with extra staff resources—beyond those accorded him or her as a Representative—to assist in carrying out diverse leadership functions  There are limits on the institutional role of the minority leader, because the majority party exercises disproportionate influence over the legislative agenda, partisan ratios on committees, staff resources, administrative operations, and the day-to-day schedule and management of floor activities  Under the rules of the House, the minority leader has certain roles and responsibilities  They include, among others, the following: Under Rule XIII, clause 6(c), the Rules Committee may not issue a "rule" that prevents the minority leader or a designee from offering a motion to recommit with instructions during initial House consideration of a bill or joint resolution  This motion allows the minority leader (or a designee) to offer a policy alternative to what the majority is proposing and obtain a floor vote on the minority's preferred solution  Under Rule IX, clause 2, a resolution "offered as a question of privilege by the Majority Leader or the Minority Leader     shall have precedence of all other questions except motions to adjourn " This rule further references the minority leader with respect to the division of time for debate of these resolutions  If offered by the majority or minority leader, a valid question of privilege—one that involves "the rights of the House collectively, its safety, dignity and the integrity of its proceedings"—receives immediate consideration by the House  Rule II, clause 6, states that the "Inspector General shall be appointed for a Congress by the Speaker, the Majority Leader, and the Minority Leader, acting jointly " This rule further states that the minority leader and other specified House leaders shall be notified of any financial irregularity involving the House and receive audit reports of the inspector general  Under Rule X, clause 2, not later "than March 31 in the first session of a Congress, after consultation with the Speaker, the Majority Leader, and the Minority Leader, the Committee on Oversight and Government Reform shall report to the House the authorization and oversight plans" of the standing committees along with any recommendations it or the House leaders have proposed to ensure the effective coordination of committees' oversight plans  Rule X, clause 5, stipulates, "At the beginning of a Congress, the Speaker or a designee and the Minority Leader or a designee each shall name 10 Members, Delegates, or the Resident Commissioner from the respective party of such individual who are not members of the Committee on Ethics to be available to serve on investigative subcommittees of that committee during that Congress " Another institutional prerogative of the minority leader is attendance at meetings of the Intelligence Committee  Rule X, clause 11, provides, "The Speaker and the Minority Leader shall be ex officio members of the select committee but shall have no vote in the select committee and may not be counted for purposes of determining a quorum thereof " In addition, each leader "may designate a respective leadership staff member to assist in the capacity of the Speaker or Minority Leader as ex officio member " In addition, the minority leader has a number of other institutional functions  For instance, the minority leader is sometimes statutorily authorized to appoint individuals to certain federal entities  The minority leader also selects three Members to serve as Private Calendar objectors—the majority leader names the other three—and serves on various commissions and groups, including the House Office Building Commission, the United States Capitol Preservation Commission, and the Bipartisan Legal Advisory Group  After consultation with the Speaker the minority leader may convene an early organizational party caucus or conference  Informally, the minority leader maintains ties with majority party leaders to learn about the schedule and other House matters, consults with the majority with respect to reconvening the House per the usual formulation of conditional concurrent adjournment resolutions, and forges agreements or understandings with them insofar as feasible  By House tradition, time is not charged to their side when party leaders, including the minority leader, make extended remarks on the floor  Given the concentration of agenda control and other institutional resources in the majority leadership, the minority leader faces real challenges in promoting and publicizing the party's priorities, serving the interests of his rank-and-file Members, managing intraparty conflict, and forging party unity  The ultimate goal of the minority leader is to lead the party into majority status  Yet there is no set formula on how this is to be done  "If the history of elections is any guide," wrote a congressional scholar, "it seems apparent that the congressional record of the minority party is only one of many factors that may result in majority status  Most of the other factors cannot be controlled by the minority party and its leaders  " There is one central dilemma that confronts the minority leader: inferior numbers  This limitation can be overcome on occasion with the right strategic approach, but on many issues this might not be possible  One study of the House minority party summarizes the strategic challenge succinctly: The minority party in the House faces a strategic problem: how do you respond when given only a small slice of the legislative pie? Do you accept the slice you've been given, bargain for more, or use every means at your disposal to win the right to cut the pie yourself? It is this problem, and how the minority party chooses to solve it, that underlies the logic of minority party politics in the House of Representatives 

ground_truth: The House minority leader, the head of the "loyal opposition," is elected every two years by secret ballot of his or her party caucus or conference. The minority leader occupies a number of important institutional and party roles and responsibilities, and his or her fundamental goal is to recapture majority control of the House. From a party perspective, the minority leader has a wide range of assignments, all geared toward retaking majority control of the House. Five principal party activities direct the work of the minority leader. First, he or she provides campaign assistance to party incumbents and challengers. Second, the minority leader devises strategies, in consultation with like-minded colleagues, to advance party objectives. Third, the minority leader works to promote and publicize the party's agenda. Fourth, the minority leader, if his or her party controls the White House, confers regularly with the President and his aides about issues before Congress, the Administration's agenda, and political events generally. Fifth, the minority leader strives to promote party harmony so as to maximize the chances for legislative and political success. From an institutional perspective, the rules of the House assign a number of specific responsibilities to the minority leader. For example, Rule XIII, clause 6, grants the minority leader (or a designee) the right to offer a motion to recommit with instructions; and Rule II, clause 6, states that the Inspector General shall be appointed by joint recommendation of the Speaker, majority leader, and minority leader. The minority leader also has other institutional duties, such as appointing individuals to certain federal or congressional entities.