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



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

Report 1: The defense lab enterprise consists of 63 labs, warfare centers, and engineering centers across the Departments of the Army, Navy, and Air Force, as shown in Figure 1 below  About 50,000 federally employed scientists and engineers work at these defense labs to support warfighter needs and develop transformative capabilities  Defense labs are managed and operated within the military service chain of command  DOD budgets for technology and product development activities under its research, development, test, and evaluation budget, which DOD groups into seven budget activity categories for its annual budget estimates  Air Force and Army labs rely on appropriated funding provided from the service—often referred to as mission funding—or from customers (or some combination thereof)  Customers, such as program offices, provide funding to defense labs for technology development activities and related research  The Air Force and Army funding structure is in contrast to Navy research and development activities, which operate under the Navy Working Capital Fund—a revolving fund that finances Department of the Navy activities on a reimbursable basis  Under this funding model, the Navy employs a Capital Investment Program to obtain capital assets, including minor military construction projects for labs  The program provides the framework for planning, coordinating, and controlling Navy working capital funds and expenditures to obtain capital assets  Figure 2 illustrates the varying funding models used by the military service labs  In addition to its labs, DOD sponsors other entities to provide for its technology development needs  Specifically, these include: FFRDCs are operated by universities, other not-for-profit or nonprofit organizations, or private firms under long-term contracts and provide special research and development services that generally cannot be readily satisfied by government personnel or private contractors  For example, the Massachusetts Institute of Technology Lincoln Laboratory develops key radar and electronic warfare technologies for integrated air and missile defense systems  In addition, the Software Engineering Institute operated by Carnegie Mellon University provides cybersecurity solutions for defense entities  While DOD sponsors 10 FFRDCs in total, it designates 3 FFRDCs as research and development labs, which maintain long-term competencies in key technology areas  In addition to these, DOD sponsors 2 systems engineering and integration FFRDCs and 5 studies and analysis FFRDCs  UARCs provide specialized research and development services similar to FFRDCs and also operate under long-term contracts  However, unlike FFRDCs, DOD requires that UARCs be affiliated with a university  Generally, UARCs may not compete against industry in response to a competitive Request for Proposals for development or production that involves engineering expertise  DOD currently sponsors 13 UARCs  Key DOD offices provide oversight to the defense labs: The Under Secretary of Defense for Research and Engineering (USD(R&E))—the principal advisor to the Secretary of Defense for research, engineering, and technology development activities and programs—serves as DOD’s chief technology officer  The powers and duties of this office include establishing policies and providing oversight for DOD’s research, engineering, and technology development activities  The Defense Laboratories Office—within the Office of the USD(R&E)—supports DOD’s research and engineering mission by helping to ensure comprehensive department-level insight into the activities and capabilities of the defense labs  This office carries out a range of core functions related to the defense labs, including analysis of capabilities, alignment of activities, and advocacy  Congress has granted authorities that address hiring, infrastructure, and technology transition challenges to defense labs since 1995  These authorities provide defense lab directors with certain flexibilities within the established legal framework to manage their operations  While Congress has provided a number of authorities, in this report we focus on four authorities that our prior work on best practices in science and technology management and expedited lab hiring has shown are, or have the potential to be, the most crucial for supporting innovation within DOD labs  Laboratory Initiated Research Authority  This authority provides lab directors with the means to fund some of the research projects that the lab will pursue  The authority provided in Section 219 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, as implemented, provides lab directors with a means to fund projects they consider to be a priority in four allowable categories: (1) basic and applied research, (2) technology transition, (3) workforce development, and (4) revitalization, recapitalization, or repair or minor construction of lab infrastructure  These projects include those not specifically tied to defined requirements, outside of the normal 2-year budget planning process  The authority directs the Secretary of Defense to establish mechanisms under which lab directors may use an amount of funds equal to not less than 2 percent and not more than 4 percent of all funds available to the defense lab for projects under the four allowable categories  Further, lab directors are permitted to obtain additional funding by charging customers a fixed percentage fee that may not exceed 4 percent of costs  Direct Hire Authorities  These authorities provide lab directors with a streamlined and accelerated hiring process  Congress has enacted four types of direct hire authorities since 2008, which help labs compete with private industry and academia for high-quality scientific, engineering, and technical talent  Specific types of direct hire authorities include hiring: (1) candidates with advanced degrees; (2) candidates with bachelor’s degrees; (3) veterans; and (4) students currently enrolled in graduate or undergraduate science, technology, engineering, and mathematics (STEM) programs , Laboratory Enhancement Pilot Program  This authority provides methods for effective lab management operations  Section 233 of the National Defense Authorization Act for Fiscal Year 2017 established a pilot program for lab directors to propose alternative and innovative methods that might lead to more effectively managing labs, and authorized lab directors to waive any regulation, restriction, requirement, guidance, policy, procedure, or departmental instruction that would affect implementation of these methods, unless such implementation would be prohibited by a provision of an existing statute or common law  Micro-purchase Authority  This authority facilitates the purchasing process for labs  The FAR states a preference for government agencies to purchase and pay for micro-purchases of supplies or services using the government-wide commercial purchase card up to and at the micro-purchase threshold, but micro-purchases may be conducted using any of the simplified acquisition methods  This facilitates the ability of lab officials to quickly and easily acquire needed items for their activities and reduce the administrative costs associated with such small purchases  While the FAR micro-purchase was generally $3,500 during our review, Congress increased it to $10,000 for activities of the science and technology reinvention labs in Section 217 of the National Defense Authorization Act for Fiscal Year 2017  As we found in June 2018, the federal government spends approximately $137 billion annually government-wide on research and development (R&D) to help further agencies’ missions, including at federal labs  From fiscal years 2015 to 2017, DOD, Energy, and NASA represented three of the top four federal agencies with the highest annual federal R&D spending, accounting for about 66 percent of total federal R&D spending on average, as shown in Figure 3  While the labs primarily support the agencies that directly fund them, DOD, Energy, and NASA research entities also collaborate extensively to support activities of shared interest  For example, DOD and NASA research centers have collaborated to develop hypersonic vehicle capabilities  Further, Energy’s national labs help provide critical national security capabilities for DOD and support NASA’s deep space mission radioisotope requirements  In 2017, Energy reported performing about $2 6 billion of work per year from fiscal years 2011 through 2015 for other federal agencies and other customers, including DOD  Most defense labs have used the selected authorities since 2008, but their use has sometimes been limited for a variety of reasons  According to lab directors, this is because of DOD legal and policy restrictions and stakeholder concerns  For example: Use of the laboratory initiated research authority was limited by DOD’s military construction funding and financial management policies  Use of the direct hire authority was limited, in part, by personnel- related delays, security clearance challenges, and military hiring restrictions  Use of the laboratory enhancement pilot program was limited by stakeholder uncertainty about how to use this authority effectively  Use of the increased micro-purchase authority was limited by stakeholder concerns about the authority’s potential effect on small businesses  We found that most defense labs have used the laboratory initiated research authority  Twenty-three of 31 of respondents to our survey— about 74 percent—reported obligating funds under this authority  However, we found that most labs are not using the full 4 percent of all funds available to each lab, or charging customers the full fixed percentage fee of 4 percent of costs, as allowed by law  Specifically, we found that, as of September 2018: Navy labs reported charging customers a percentage fee of about 2 percent of costs as of fiscal year 2018  Prior to this, Navy labs only charged a 1 percent fixed fee on these costs  Because Navy labs are working capital funded organizations, they can use payments from customers for goods delivered or services performed  Army labs reported using between 2 and 3 percent of all funds available to the lab for projects under the four allowable categories and charging customers a fixed fee of between zero and 3 percent of costs to fund such activities  Only the Air Force Research Laboratory reported using the full 4 percent of all funds available to the lab  According to agency officials, the lab is using 3 percent of all funds available to the lab and is allowing individual technology directorates the option to use the additional 1 percent of funds available  In fiscal year 2018, three of the lab’s nine technology directorates chose to use this additional 1 percent  However, the lab has not charged customers a fixed percentage fee on their costs at all  As figure 4 shows, in fiscal year 2017, the aggregate fixed percentage fee charged by labs in each of the military departments totaled under the full 4 percent allowed by law for each funding source  Decisions to charge lower percentages are decisions to forego additional potential funding, although agencies have various reasons why this can happen, as we will discuss later  In total, DOD reported that this authority provided almost $300 million to labs in fiscal year 2017 and funded more than 1,750 projects across the four allowable categories, as Figure 5 illustrates  We previously found, in June 2017, that the laboratory initiated research authority provides defense lab directors with limited flexibility to initiate science and technology projects  These projects include those that are not road mapped or tied to defined requirements outside of the normal 2- year budget planning process, and are focused on both near- and long- term needs  For this review, defense lab officials we interviewed stated that the laboratory initiated research authority enables their scientists and researchers to pursue projects not necessarily tied to requirements and provides necessary funds for workforce development and lab infrastructure projects  Further, as shown in Figure 6, lab directors we surveyed generally view the authority as both fostering innovation and increasing efficiency across the four allowable categories on which funds can be used  In accordance with the one of the statutory purposes for the use of the funds, lab directors have developed new, innovative technologies using this authority  For example, DOD reported that: In fiscal year 2017, the Naval Surface Warfare Center, Crane Division, developed and fielded a solution to an urgent requirement for defeating small unmanned aerial vehicles that attack Navy assets or surveil naval activities  The center delivered this technology to the warfighter in May 2017 just 7 weeks after the Navy submitted the requirement  The Army Research Laboratory used the authority to fund a project that eventually developed a material that could increase the speed and lower the power needs of future generations of computer chips, thereby supporting Army networks  The Navy invested more than $700 thousand in laboratory initiated research authority funds to commission a Ballast Water Research Lab at Naval Surface Warfare Center, Carderock Division  Through the use of this new facility, engineers will be able to study ways to treat ballast water to prevent introduction of non- native aquatic species into a new environment that can be disastrous for the marine life that already inhabit that environment, and ensure that the Navy is able to meet various port regulations around the world for its ships  The Air Force Research Laboratory invested funds in fiscal year 2017 to renovate an existing facility to provide high performance computing capability to aid the rapid development of “game-changing” technologies and weapon systems  Officials at the Army’s Space and Missile Defense Command Technical Center noted they used the laboratory initiated research authority for the first time in fiscal year 2018 because the current executive director, who assumed the position in 2017, prioritized implementing this authority  Most of the Center’s planned investments are focused on workforce development and laboratory infrastructure projects; officials cited a high energy laser technology lab as one of the projects being supported by the revitalization, recapitalization, or minor military construction portion of this authority  Although the majority of defense labs reported using the laboratory initiated research authority, interviews we conducted throughout our review, along with other DOD reports, identified certain obstacles that have, at times, impeded wider usage  DOD-wide military construction funding restrictions  DOD restrictions limit the amount of laboratory initiated research authority funds that labs can spend on lab infrastructure  DOD’s limit is $6 million for the revitalization and recapitalization projects that can be funded under the laboratory initiated research authority  Lab officials stated that this amount is often insufficient to construct advanced lab facilities  Air Force Research Laboratory officials indicated that it is nearly impossible to construct lab facilities for less than $6 million  Officials at the Army’s Aviation and Missile Research, Development and Engineering Center echoed this sentiment and noted that they have primarily used funds to renovate existing buildings rather than fund new lab facility construction  In January 2017, the Defense Science Board identified lab infrastructure challenges, including that the average age of research and development facilities was nearly 50 years  Further, the Board reported that the labs are usually not successful in competing against broader service needs for military construction funds  Air Force does not charge customers a fixed percentage fee of costs  The Air Force Research Laboratory reported that it is not charging customers the allowable fixed percentage fee of costs to fund science and technology activities because it does not have a mechanism in place to do so  Air Force Research Laboratory officials estimated the lab would collect approximately $3 million a year if the lab charged customer activities the maximum allowable fee (4 percent)  Air Force financial management officials stated that the service’s accounting system does not currently have an automated capability to transfer the allowable percentage fee of costs to a central account at the Air Force Research Laboratory  This lack of capability, officials noted, creates a significant administrative burden for charging these fees  The officials stated that they have not yet estimated the cost to add an automated capability  Although it is possible for the Air Force Research Laboratory to charge customer work orders manually—outside of the Air Force’s accounting system—officials with the Office of the Assistant Secretary of the Air Force for Financial Management and Comptroller perceive that the resources (time and people) required to manage such a process would be cost prohibitive  However, according to these officials, the Air Force has not assessed the costs required to improve the accounting system to do so, nor has it identified the potential benefits any improvements would provide  Federal internal control standards state that changes in condition affecting an entity and its environment often require changes to the entity’s internal control system, as existing controls may not be effective for meeting objectives (or addressing risks) under changed conditions  Further, these standards state that any internal control deficiencies require further evaluation and remediation by management  By not assessing the potential costs and benefits related to the options for collecting these allowable fees, the Air Force could be missing out on a potential source of funding to support its needs  DOD lacks clear guidance on how the Navy should use the initiated research authority for some infrastructure investments within the Capital Investment Program  In our review of DOD documentation, we found that, among the military departments, Navy labs funded recapitalization and revitalization projects using the laboratory initiated research authority the least  As recently as early 2017, a DOD-commissioned study found that defense labs face substantial infrastructure deficiencies that it has not yet identified funding to address  In fiscal year 2017, Navy labs invested $7 3 million in lab recapitalization projects, compared to $32 9 million and $53 7 million at the Air Force and Army, respectively  Navy lab officials told us that their ability to fund lab recapitalization and revitalization projects using funds available under the laboratory initiated research authority is limited because they have not been provided with clear guidance as to whether and how to use the laboratory initiated research authority within the Capital Investment Program of the Navy Working Capital Fund  Some Navy lab officials stated that they have found ways to use the initiated research authority for certain infrastructure investments  These officials stated that they used authority outside of the Capital Investment Program of the Navy Working Capital Fund, for instance, for projects below applicable thresholds because using the authority within the Program creates a bureaucratic and financial burden for them  For example, officials at two separate warfare centers—Naval Surface Warfare Center, Crane Division, and the Naval Air Warfare Center, Aircraft Division, noted that they did not expend funds in either fiscal year 2016 or fiscal year 2017 for recapitalization and revitalization projects  Both cited the Capital Investment Program as a significant barrier to their desired use of the laboratory initiated research authority  Officials from the Office of Budget, within the Office of the Assistant Secretary of the Navy for Financial Management and Comptroller agreed that, to date, clarifying guidance on the use of the laboratory initiated research authority within the Capital Investment Program has not been issued, effectively limiting the extent to which the labs can use it for infrastructure needs  According to these officials, the Office of the Secretary of Defense (OSD) Comptroller—in coordination with the Office of Financial Policy and Systems within the Office of the Assistant Secretary of the Navy for Financial Management and Comptroller—is responsible for developing the clarifying guidance their office has sought  This persistent lack of guidance on whether or how Navy labs should use the laboratory initiated research authority within the context of the Capital Investment Program presents an opportunity cost  Namely, the Navy’s labs have missed out on, and continue to miss, opportunities to invest in needed improvements to its aging lab infrastructure  The Army requires its laboratories to apply similar percentages to what is refers to as “Army direct appropriations” and “customer funds ” The Army requires that the percentage fee applied to direct appropriations not vary from the percentage fee applied to customer funds by more than 1 percent  The Army implemented this policy to maximize the laboratory initiated research authority’s effect on its 17 laboratories  However, the Office of the USD(R&E) reported in March 2018 that the policy was having a significant limiting effect on the breadth and scope of activities executed under this authority  Similarly, we found that the policy may, in practice, create a disincentive for Army lab directors to use the authority  In their responses to our survey, Army lab directors, representing key capability areas, acknowledged their concern about the percentage fee they assessed on customer funds affecting their ability to increase or maintain their customer bases  Further, some Army lab directors reported assessing a lower percentage fee on customer funds than allowed, which could help retain customers that might otherwise be driven away with higher assessed fees to carry out activities  As a result, these labs generally are setting a lower percentage fee on their directly appropriated funds, thereby lowering the overall laboratory initiated research funding available to them  Nonetheless, the Army has not assessed its policy to determine whether changes are needed to eliminate these disincentives  Continuing to operate without such an assessment could result in Army labs using the laboratory initiated research authority to fund fewer self-initiated projects—with the downstream effect that fewer new technologies for warfighters are available  The Navy applies a consistent fixed percentage fee of costs across its labs  Within the Navy, senior leadership has set the fixed percentage fee of costs the labs charge on customer funds at 2 percent  A senior Navy science and technology official stated that Navy leadership set a uniform fixed percentage fee to charge to customer activities across the Navy lab enterprise, in part, to ensure the labs were not inadvertently competing against one another for customer funds  For example, without a uniform rate, a Navy warfare center could offer a lower fee to entice a customer to use it rather than another center  The use of a fixed percentage fee facilitates program offices selecting warfare centers on the basis of best available match in capabilities  On the other hand, the Navy’s fixed 2 percentage fee of costs does limit—by half, as compared to the maximum 4 percent allowable—the amount of fees that Navy labs can collect  Consequently, several Navy lab directors told us that they would like to have the ability to increase the fixed percentage fee of costs above the Navy’s 2 percent to provide their labs with additional resources they said they need for innovation-related investments  Among the lab directors that responded to our survey, 30 of 31 replied that their lab had used at least one of the four types of direct hire authorities previously discussed since fiscal year 2014  Officials view direct hire authority as allowing the labs to compete with private industry for qualified applicants  Lab directors reported they generally believe that each type of direct hire is extremely or very useful for fostering innovation and increasing efficiency, as shown in Figure 7  Selected Officials’ Testimony on the Value of Direct Hire Authority: The U S  Army Engineer Research and Development Center “was able to meet this important goal [of annually hiring more than 160 new researchers] in large part because of its direct hiring authorities, which save time, effort, and costs, and allow the organization to more effectively hire the best and brightest minds available ” – Dr  Jeffrey P  Holland, Past Director, U S  Army Engineer Research and Development Center, in testimony before the Senate Committee on Armed Services (Emerging Threats and Capabilities Subcommittee), May 3, 2017  “The Air Force’s ability to recruit, retain, and develop the STEM workforce is vital toward building the future Air Force; Congress has been greatly supportive of these efforts…the addition of direct hire for candidates has been extremely useful in hiring qualified scientists and engineers in less than half the time of traditional hiring methods ” – Jeffrey Stanley, Air Force Deputy Assistant Secretary— Science, Technology and Engineering in testimony before the House Committee on Armed Services (Emerging Threats and Capabilities Subcommittee), March 14, 2018  Although participation in the laboratory enhancement pilot program is open to the DOD labs—and 19 of the 31 lab directors, or 61 percent, that responded to our survey reported they were participating—to date, only the Navy has formally established a pilot program for its labs  The Army and Air Force have not yet used this relatively new authority  A senior Navy science and technology official told us the Navy took important steps to facilitate the implementation of that service’s pilot program  According to the Navy official: The Office of the Deputy Assistant Secretary of the Navy for Research, Development, Test and Evaluation led the effort across the Navy labs, compiling—from each lab’s submission—a single list of proposals to forward to Navy leadership that would apply to all participating Navy labs  The Navy pursued a three-phased approach with its pilot program, with Phase 1 primarily focused on contracting and acquisition policy- related matters  Senior Navy research and development officials perceived these matters as being the easiest from which to obtain buy-in from Navy policy officials and attorneys, as well as Navy leadership  Phase 2 will include proposals related to Information Technology systems for research and development networks, while Phase 3 will most likely address personnel issues  Navy research and development officials deferred proposals— including information technology network enhancements—that might require extensive discussions with policy officials and attorneys stakeholders across the Navy  These proposals were pushed back to allow time for those stakeholders to see how the pilot program was being implemented and executed by the labs  None of the Army and Air Force labs has yet established a laboratory enhancement pilot program  Consistent with Army policy, the Medical Research and Materiel Command and the Space and Missile Defense Command Technical Center submitted proposals; however, they have yet to establish a pilot program  The Army’s Research, Development and Engineering Command, with input from its subordinate labs and engineering centers, developed a list of lab enhancement proposals but, as of September 2018, had yet to formally submit these final proposals to Army leadership for approval  These include initiatives in business operations, contracting, finance, information technology, and personnel management  A senior Army science and technology acknowledged that organizations across the military department have concerns about providing the labs with too much autonomy to use this new authority  Air Force Research Laboratory officials said they previously submitted a list of approximately 30 proposals to the Defense Laboratories Office in September 2017, but ultimately pulled back those requests because of stakeholder concerns within the Air Force  Specifically, officials with the Office of the Deputy Assistant Secretary of the Air Force for Science, Technology, and Engineering stated that the Air Force Materiel Command, to which the lab is a subordinate organization, had not seen the proposals before they were submitted  In addition, these officials identified concerns about how various stakeholders throughout the Air Force—such as those from financial management and personnel—would react to these proposals  These proposals could potentially sidestep the stakeholders’ oversight function of related lab activities  A senior Air Force Research Laboratory official stated that the lab re-submitted its proposals to the Air Force Materiel Command and that Air Force leadership was still reviewing them at the time of this report  Twenty-six of 31 labs directors—84 percent—reported having used the $10,000 micro-purchase threshold authority granted by Congress in 2016  However, we found that contracting and small business management officials’ concerns with this authority have created implementation challenges at some defense labs  For instance, a senior Navy official indicated that multiple stakeholders from across the Navy—including its Office of Small Business Programs—raised concerns about the authority’s potential impact on small businesses as micro-purchasing allows defense labs to bypass small business set asides  Several labs reported similar stakeholder concerns that prevented implementation of the micro-purchase threshold increase  At the same time, however, lab officials we interviewed expressed the view that the increased threshold will be beneficial, consistent with their opinions about the laboratory enhancement pilot program  For example, officials at the Naval Research Laboratory stated that increasing the threshold to $10,000 allows their scientists and engineers to directly purchase necessary equipment and materials through simplified procedures  They identified examples of projects that had been delayed by as much as several months because scientists and engineers used other than simplified acquisition procedures to purchase a relatively inexpensive piece of equipment, such as a specialized microscope, because the cost was above the previous threshold of $3,500  Similarly, the Army’s Armament Research, Development and Engineering Center reported that the micro-purchase threshold increase enables the lab to use simplified acquisition procedures for more items  As a result, they noted that the new authority increases efficiency by reducing contracting time and cost for those additional items  The Navy’s Space and Naval Warfare Systems Center Atlantic similarly reported that requirements, which were previously procured using other than simplified acquisition procedures, took up to 60 to 90 days to procure, while it took as little as 3 to 4 days under this new authority, which enabled its scientists and engineers to purchase materials needed for critical, time sensitive projects  However, lab officials acknowledged that the $10,000 micro-purchase threshold authority—like the laboratory enhancement pilot program—is too new to fully understand how it will increase efficiency and foster innovation over the long term  DOD sponsors several research centers, which are governed through noncompetitive agreements, including contracts  These centers provide the department with access to scientific experts employed by universities and other non-profit organizations  Scientists employed by these external to DOD research centers—specifically, three lab FFRDCs and 13 UARCs—execute DOD-funded science and technology development projects in emerging technical areas  DOD staff oversee these centers using routine oversight of funded research tasks and comprehensive reviews, which help DOD determine whether the centers’ funding should continue  DOD and research center officials told us that their ability to authorize work at the FFRDCs that DOD sponsors is limited by legislative restrictions on the staffing levels at these centers, as well as by infrastructure modernization challenges they face  DOD sponsors three research and development FFRDC labs that were established under noncompetitive procedures  Two of the three lab FFRDCs are operated by universities and one is operated by a nonprofit company  DOD also has contracts with 13 UARCs that fulfill a similar scientific role as the lab FFRDCs, while also differing from them in other respects  These differences are described in more detail in table 1  DOD’s contractor-operated research centers received about $1 3 billion annually in DOD funding in fiscal year 2016 and fiscal year 2017, according to DOD data  The two largest research and development FFRDCs, the Lincoln Laboratory and the Software Engineering Institute, received about 67 percent of total research center funding from DOD in 2017  UARCs received an average of $27 million in DOD funding, which was a 15 percent decrease from 2016  Research centers may also receive work and funding from other federal departments and private companies after obtaining DOD sponsor approval  Appendix II provides an overview of DOD FFRDC and UARC funding in fiscal years 2016 and 2017  DOD Sponsorship and Contract Awards: We reported in 2014 that FFRDCs in the federal government are defined through the sponsoring agreement between the agency and the contractor retained to operate the FFRDC  A written agreement of sponsorship between the government and the FFRDC must be prepared when the FFRDC is established, which may be included in a contract between the government and the FFRDC, or in another legal instrument under which an FFRDC accomplishes effort, or it may be in a separate written agreement  Historically, DOD sponsors retain contractors for many years or decades as FFRDC operators  We found that research centers undertake DOD-sponsored projects and, in some limited instances, scientific projects initiated by centers that are overseen by DOD staff  Individual sponsors enter into noncompetitive contracts with FFRDCs and UARCs  DOD uses noncompetitive contracts to establish or maintain an essential engineering, research, or development capability to be provided by an educational or other nonprofit institution or a federally funded research and development center  Scientific Project Funding: We found that project sponsors provide funding to existing contracts  For example, the government issues orders for requirements under Lincoln Laboratory’s indefinite delivery indefinite quantity base contract as funding sponsors approve new projects  Individual project sponsors, along with the primary sponsor, oversee how project funds are spent by the centers  Project sponsors decide whether they will continue to work with these entities based on perceived performance success  This effectively provides an incentive for FFRDCs and UARCS to perform successfully  This work and review cycle is described in Figure 9 below  FFRDCs and UARCs also partner with DOD government-operated labs to plan and execute technology development projects  For example, according to Navy officials, Naval Surface Warfare Center, Carderock Division collaborated with Navy-sponsored UARCs, such as Penn State’s Applied Research Laboratory, to help develop Navy submarine propeller and propulsion designs  Self-initiated Projects: Research center officials said that DOD provides some research centers with limited funds to self-initiate innovative projects  This funding helps the centers ensure that development projects are not limited to just satisfying near-term DOD requirements  Instead, future generations of DOD technologies can be funded  For example, officials at Johns Hopkins University Applied Physics Laboratory proactively conducted work on advanced naval defense technologies in response to similar technology development in adversary countries  Although Navy sponsors did not fund this initial work, they subsequently provided funding in this area after Hopkins’ research identified a risk reduction strategy for the Navy, according to the Johns Hopkins officials  This allowed the UARC to move relatively quickly on a new science and technology project idea  DOD uses 13 UARCs and three lab FFRDCs to obtain direct access to scientific expertise in emerging technical areas, supplementing research conducted at DOD’s government-owned and operated labs  These research centers provide DOD with additional scientific capabilities and the ability to expand quickly into new technical fields  Hiring Scientific Personnel: Although FFRDCs are largely federally funded, they are generally operated, managed, and administered by either a university or consortium of universities, other not-for-profit or nonprofit organization, or an industrial firm, as an autonomous organization or as an identifiable separate operating unit of a parent organization  The contractor operating the FFRDC exercises primary control over its FFRDC’s business concerns, such as personnel policies and compensation  DOD-funded research centers have flexibility in hiring scientists that leverage a parent institution’s expertise in emerging scientific fields  For example, leadership officials at the Army Institute for Soldier Nanotechnologies UARC at MIT and the Software Engineering Institute FFRDC at Carnegie-Melon University noted that projects they have conducted for DOD have benefitted from university experts in fields such as dark matter physics and artificial intelligence  Personnel Compensation: Research center officials we spoke with noted that their workforce policies permit them to flexibly hire, fire, and compensate staff as needed  Although employee salaries are established separately from the government schedule, they are approved by the government  Further, officials noted that university centers typically offer salaries in line with the labor market, but do not attempt to compete on a salary basis with relatively high, unaffordable private sector company salaries  Instead, they compete on the basis of other factors, such as offering scientists the opportunity to work for a prestigious university conducting science and technology research  Research Center Infrastructure: As with personnel matters, research centers have discretion to manage infrastructure in accordance with the policies and procedures of their parent institutions  While one center, Lincoln Laboratory, is located on government property, others primarily reside on property owned or leased by their parent institutions  According to agency officials, DOD contributes funding for the use and repair of these facilities through their contracts with research centers  Officials noted that Lincoln Laboratory uses military construction funding to pay for new buildings as it is located on government property  Trusted Advisor Role: FFRDCs and UARCs function as trusted advisors for the government and operate in the public interest with objectivity and independence  FFRDCs are independent, private-sector, non-profit organization units required to be free from personal or organizational conflicts of interest, as the FFRDCs answer to the government customer  As a result, DOD’s lab FFRDCs perform tasks that are closely associated with the performance of inherently governmental functions and have access to sensitive and proprietary data  Research center officials noted challenges limiting their work providing scientific expertise to DOD  FFRDCs are also limited in executing infrastructure investments  Limitation on Available Work Hours: DOD FFRDCs are limited by an annual ceiling set by Congress on the amount of staff years of technical effort (STE) that may be funded for defense FFRDCs  We previously found in October 2008 these limits were imposed in response to concerns that DOD was inefficiently using its FFRDCs  We found that the STE workload limitation aimed to ensure that FFRDC work was appropriate and limited resources were being used for DOD’s highest priorities  As a result, Software Engineering Institute officials said they decline many DOD programs’ requests for assistance due to the annual work hour limitation  Further, officials at the Office of the Secretary of Defense’s Studies and FFRDC Management Office reported that this limit significantly constrains the use of DOD’s FFRDCs and that DOD customer demand for their services is significantly greater than the annual STE limit  OSD officials indicated that FFRDC related work must be deferred to later years when these limits are reached, since there are no other legally compliant alternatives capable of fulfilling these requirements  Infrastructure: FFRDC officials we interviewed identified infrastructure challenges—including aging facilities and equipment—as hindering their research and development efforts  For example, many buildings at the Massachusetts Institute of Technology (MIT) Lincoln Laboratory are over 60 years old; MIT considers over half of them to be in substandard condition  According to an MIT official, these facilities, located on government property, were not structurally designed for modern research and have relatively poor vibration isolation, resulting in inefficient workarounds or work that could not be performed  Officials from the Defense Laboratories Office noted that the MIT Lincoln Laboratory is unique among DOD’s FFRDCs in that it is operated on government- owned property  A 2013 study, conducted on behalf of the White House Office of Science and Technology Policy, found that lab infrastructure project funding proposals must compete with hospitals, barracks, runways, and roads and, therefore, tend to be lower on the priority list for military construction funding  A 2017 Defense Science Board report and DOD officials we spoke with indicated this continues to be true  While contract research centers have significant flexibility to execute infrastructure work, they are still affected by limited availability of military construction funding  Officials at another center noted that in some instances, DOD sponsors have been unable or slow to provide required secure facilities and equipment within needed time frames  Delays of this nature can affect the research centers’ ability to deliver the technologies or related services needed by DOD  The Department of Energy (Energy) primarily relies on contractor- operated FFRDCs to operate its labs, while the majority of NASA labs and centers are government-operated  Energy’s national labs form the core of the agency’s scientific work and mission  This is in contrast to DOD-funded labs, which constitute a relatively small aspect of DOD’s overall mission  We have previously found that Energy’s labs can use funding for minor infrastructure improvements  NASA centers can also approve and fund certain facility projects, in accordance with NASA policies, and they have encountered significant challenges with aging infrastructure  Also, in some cases, energy and space research centers have significant challenges with hiring replacement staff and competing with private sector employers for staff  Energy’s labs can hire scientific personnel with the flexibility of private companies, while NASA centers were previously provided hiring flexibilities by Congress in 2004 to facilitate staff hiring  While Energy and NASA’s research entities follow their specific governance models, there are broad characteristics common across these agencies as well as DOD  Table 2 illustrates that while research centers are largely government-owned, the government is not always the operator  As we have reported, Department of Energy national labs are primarily operated by for-profit, non-profit and university FFRDC contractors using management and operating contracts, which are competed on a limited basis  Energy’s funding sponsors and headquarters officials are required to reevaluate FFRDC performance in increments not to exceed 5 years by federal acquisition regulations, which inform future decisions to renew the agreement  In 1990, we designated Energy’s contract management—including both contract administration and project management—a high-risk area because of Energy’s inadequate management and oversight of contractors, leaving the department vulnerable to fraud, waste, abuse, and mismanagement  In 2009, we subsequently narrowed the focus of Energy’s high-risk designation to the National Nuclear Security Administration and Office of Environmental Management, which together oversee four national labs  Further, in our 2017 High Risk report, we found that these two agencies had made progress in addressing our contract management concerns, but we identified continued problems with the agencies having sufficient capacity to mitigate contract and project management risks  Also, we found that they had demonstrated little progress in addressing contract management challenges, particularly in the area of financial management  The Department of Energy uses performance-based management and operating contracts, which have been subject to limited competition, with universities, non-profit companies and for-profit companies to operate the national labs on government-owned property  These contractor-operated FFRDCs provide the vast majority of Energy’s science and technology capacity, rather than supplementing the work of government-operated labs like DOD’s FFRDCs  Energy has depended on the expertise of private organizations to execute its science and technology work since the Manhattan Project produced the first atomic bomb during World War II  The Spallation Neutron Source is an experimental research facility at Oak Ridge National Laboratory—a government-owned contractor-operated laboratory  The Spallation Neutron Source includes the world’s most powerful pulsed-neutron sources and provides information about the structure and properties of materials that cannot be obtained by other means  The Spallation Neutron Source is a user facility whereby researchers from universities, national laboratories, and industry submit proposals, which are peer- reviewed and must compete for time at the user facility  The primary focus of each lab varies based on its expertise and facilities  Energy largely oversees its lab contractors through its headquarters program offices, which include the National Nuclear Security Administration, Office of Science, the Office of Fossil Energy, as well as co-located government field offices  Office of Science-sponsored labs primarily support scientific research for energy and physical sciences, while the National Nuclear Security Administration-sponsored (NNSA) labs primarily focus on nuclear weapons and related science and technologies  Energy also oversees its lab contractors’ activities through on-site Energy oversight offices that work alongside lab management at each FFRDC  Some labs specialize in earlier-phase science, while other labs work on later-phase nuclear weapons technologies in addition to earlier-phase science  As Figure 10 shows, these labs are spread across the United States  Energy has only one government-operated and government-owned lab, the National Energy Technology Laboratory  Key differences between Energy’s contractor-operated and government-operated governance models are described in table 3  Energy’s FFRDCs use their own personnel systems, which Energy officials stated provide more flexibility for hiring and retaining qualified staff  Management within these FFRDCs can move staff in or out of scientific areas more quickly than government labs can, thereby providing greater agility to meet Energy’s needs in emerging science areas  For example, Energy’s lab oversight staff at Oak Ridge National Laboratory told us that use of lab contractors’ human resources management systems allows for workforce flexibilities to meet Energy’s needs  While these contractors have leeway in managing their human resources systems, Energy’s headquarters maintains oversight—through its contracting officers—over employee compensation  Energy’s FFRDC contractors manage and operate nearly all of the department’s government-owned national lab facilities—including day-to- day management of government-controlled facilities and real property  Lab operators used funding to complete minor construction projects, which cost $10 million or less  This funding comes from a percentage of science and technology projects’ funding, requires local Energy oversight office approval, and has streamlined project management requirements  In contrast, major infrastructure upgrades are funded through relatively long and complex line-item funding processes, and projects over $50 million are subject to more rigorous project management requirements  Energy’s labs use a small portion of their funding to initiate discretionary projects for science and technologies that will benefit sponsors in the long-term by maintaining the scientific and technical vitality of the laboratories  To maintain and enhance lab expertise, the National Defense Authorization Act for Fiscal Year 1991 authorized Energy’s contractor-operated labs receiving funding for national security programs to use a percentage of lab funds to perform lab-directed R&D of a creative and innovative nature  The actual percentages allowed to be used for lab-directed R&D are subject to Energy’s approval  Energy’s entities sponsor most national lab projects based on their needs and lab expertise  Typically, earlier foundational science projects are funded through a process whereby funding sponsors issue calls for proposals to Energy’s national labs  Interested scientific teams at labs provide proposals to conduct these projects for sponsor consideration  Sponsors then assess proposals for scientific merit and decide which teams receive funding to execute their projects  NNSA provides funding for later-phase nuclear technology development projects to its labs after agreement is made regarding objectives and deliverables for specific projects, according to Lawrence Livermore National Laboratory officials  Despite their flexibilities with regard to hiring and infrastructure decisions compared to government operated labs, Energy’s lab leadership and government oversight officials noted human resource and facilities related challenges, such as: Sufficiently compensating staff located in high-cost of living areas  For example, the labor market of the San Francisco area, where several Department of Energy national labs are located, is highly competitive for employers  Commercial firms offer salaries and compensation that typically exceed those of government-funded, contractor-operated labs, although Energy’s contractors have more pay flexibility than is allowed for Energy’s government employees  Obtaining government clearances in a timely manner  Energy’s NNSA oversight officials and lab management staff, in particular, cited this challenge, which they stated has led to a backlog of people needing clearances  Government hiring freeze constraining overall hiring  Officials at Energy’s government-operated National Energy Technology Laboratory reported that as a result of a government hiring freeze, the lab has increasingly hired private contractor staff to the point that more than half of the total lab staff is now comprised of contractor employees  Major infrastructure challenges at Energy labs  Energy reported in July 2018 that over half of all national lab buildings are in either substandard or inadequate condition  The Energy Inspector General also identified infrastructure modernization as one of Energy’s top management challenges  This finding followed a mandated commission’s report in 2015 that facilities and infrastructure across Energy’s national lab network were hampered by high levels of deferred maintenance and excess facilities  The majority of NASA’s science and technology facilities are operated within the governance framework of government-operated research centers, similarly to most DOD labs  While government-operated, they have been granted additional legislative flexibilities for hiring employees beyond those normally available to government entities  NASA locates its science and technology staff at four government- operated research centers, one contractor-operated FFRDC, and at five NASA centers assisting space and space flight development  These centers and the Jet Propulsion Laboratory—NASA’s sole sponsored FFRDC—execute NASA’s research missions including technology development in exploration and aeronautics  The differences between these two governance approaches are described in Table 4  NASA also works with Johns Hopkins University Applied Physics Lab, a UARC, to develop major space flight missions  The NASA Glenn Research Center—a government- operated laboratory—is currently developing solar electric propulsion technologies intended to allow manned and unmanned spacecraft to be propelled far beyond earth orbit using solar power  This project is developing large, flexible, radiation-resistant solar arrays that can be unfurled to capture solar energy powering fuel-efficient electrostatic thrusters  Scientists expect a system-level flight test within the next decade to demonstrate key technologies supporting NASA’s Lunar Orbital Platform-Gateway project, a platform to mature necessary short- and long-duration deep space exploration capabilities  Headquarters, including funding sponsors providing oversight for their individual projects  Title 51, Chapters 201 and 203 of U S  Code and technology efforts with DOD and other organizations, including use of NASA lab and test facilities  Operated by university contractor having sole source contract  Not permitted to compete against industry, except for operation of an FFRDC  property (originally part of DOD)  5-year contract renewable to 10 years total  Headquarters, including funding sponsors providing oversight for their individual projects  Title 51, Chapters 201 and 203 of U S  Code; 10 U S C  § 2304 (c) (3)(B) ; Federal Acquisition Regulation § 35 017 based NASA oversight staff  sponsors seeking FFRDC assistance with NASA approval  “Lab” as used in this context refers to science and technology organizations equivalent to NASA Research Centers, DOD UARCs and FFRDCs  Mission leadership officials at NASA Headquarters—including the Associate Administrators for Aeronautics Research, Human Exploration, Science and Space Technology—oversee NASA’s research centers as well as the Jet Propulsion Laboratory  These officials are responsible for technology programs providing funds to research centers and the Jet Propulsion Laboratory to support their specific mission areas  NASA’s science and technology project portfolios are based on the requirements and priorities established by NASA’s leaders in collaboration with key stakeholders in academia and industry among others  In planning their science and technology work, NASA’s Glenn Research Center officials noted that NASA research center directors consider the capabilities and resources—including staff and facilities—of other research centers to minimize redundant work  NASA depends on a highly skilled civil servant and contractor workforce to plan and execute its missions  Congress provided NASA with additional human resource authorities beyond those otherwise allowed for federal government personnel through the NASA Flexibility Act of 2004  We found in September 2008 that NASA sought this flexibility to ensure that it could hire and retain the workforce it desired  This law consisted of multiple provisions to address a range of human capital challenges and to strengthen all levels of the workforce  The provisions included incentives—including compensation—to allow NASA to compete successfully in the labor market with the private sector and reshape its workforce more effectively to support the Agency’s mission  NASA also employs a significant contractor workforce across its different centers  Glenn Research Center officials we interviewed stated their portfolio of science and technology projects—and funding—mostly aligns with NASA’s top requirements and priorities  They, along with NASA sponsors, create technology roadmaps and investment plans to determine their future projects  NASA policy requires that NASA’s scientific teams offer proposals for potential research and science and technology projects  This is similar in some ways to how many DOD and Energy centers must find sponsors willing to fund specific technology development projects, rather than receiving technology development funding for a given year  These proposals are reviewed by peer review teams, who identify for selecting officials those proposals they believe have the most scientific merit  Ames Research Center officials said they believe this process can foster innovation, encourage employees to keep skills honed, and mitigate complacency  Glenn Research Center officials said that while most of the work they conduct is for sponsored applied research or advanced technology development, about 2 percent of their science and technology budget is spent on early-stage scientific innovation  Recommended projects of this nature proposed by the research center are typically approved by headquarters officials, according to these Glenn officials  NASA provides technical grants for basic research and applied science to university scientists nationwide on a competitive basis, and also funds similar research done internally at research centers  As with DOD and Energy’s research centers, NASA officials have identified some key operating challenges, including: Aging infrastructure and facilities  The NASA Inspector General listed infrastructure area as one of the top five management and performance challenges facing NASA  Further, the Inspector General identified deficiencies with facilities planning and reported that about 80 percent of facilities at three of four NASA research centers are over 50 years old, while about half of the facilities at the Jet Propulsion Laboratory and the fourth research center are that old  Infrastructure projects and upgrades of $1 million or less are undertaken by research center management instead of at the NASA headquarters level  Construction above this threshold has significantly more requirements and is approved by NASA headquarters  Glenn Research Center officials indicated it is difficult to obtain funding for projects that exceed the minor infrastructure threshold, in part, due competition with major construction of facilities proposals from across the agency for limited funds  As a result, they put most of their efforts into sustaining existing infrastructure  Workforce shortages in key technical areas  As we found in May 2018, NASA has experienced workforce challenges on several major projects such as the Mars 2020 and Europa Clipper projects  Also, over 40 percent of NASA’s workforce is either eligible to retire now or will be eligible in the next 5 years  NASA headquarters officials noted that NASA’s workforce is aging because NASA has a low attrition rate—about 4 percent annually—and high numbers of staff stay several years beyond retirement  Further, in 2017, the NASA Inspector General found gaps in NASA’s workforce planning for specific capability areas and how workforce plans would meet future needs, and recommended that NASA establish standardized guidance defining the data and analyses for these planning efforts  NASA concurred with and identified its plan to implement this recommendation  However, NASA has not implemented this recommendation, according to the NASA Inspector General’s latest semiannual report to Congress  Congress provided DOD lab directors with key authorities to foster targeted, timely investments in the most pressing technology areas  Lab directors have used these authorities—such as laboratory initiated research and direct hire authorities—to varying degrees, but more needs to be done to facilitate innovation and efficiency  Specifically, service specific obstacles in the Air Force, Navy, and Army impede lab directors from capitalizing on laboratory initiated research authority to a greater extent  Service leadership can take actions to better understand and potentially remove barriers to more fully use laboratory initiated research tools  We are making the following three recommendations to DOD: The Secretary of the Air Force should assess the potential costs and benefits of implementing accounting system improvements that would allow the Air Force Research Laboratory to charge customers a fixed percentage fee on provided science and technology activities to the extent allowed under the laboratory initiated research authority  (Recommendation 1) The Secretary of the Navy should clarify whether and how to use the laboratory initiated research authority within the Capital Investment Program  (Recommendation 2) The Secretary of the Army should assess existing Army policy for laboratory initiated research authority and determine whether to implement changes to eliminate disincentives for lab usage of the authority  (Recommendation 3) We provided a draft of this report to DOD, Energy, and NASA for review and comment  Energy and NASA did not provide any comments on the draft report  In DOD’s written comments, reproduced in appendix III, DOD concurred with our three recommendations  Further, in its response to our third recommendation, DOD stated that the Army plans to initiate a study by January 2, 2019, regarding its use of the laboratory initiated research authority  According to DOD, the Army’s study will identify potential opportunities for policy improvements  We are sending copies of this report to the appropriate congressional committees and offices; the Secretary of Defense; the Secretaries of the Army, Navy, and Air Force; the Secretary of Energy; and the NASA Administrator  In addition, the report will be made available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions concerning this report, please contact me at (202) 512-4841  Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this report  Staff members making key contributions to the report are listed in appendix IV  This report examines (1) how the Department of Defense (DOD) labs have used selected legislative authorities to foster innovation and efficiency and identify what barriers impede their use; (2) identifies and describes governance models used by selected DOD-sponsored federally funded research centers and university affiliated research centers; and (3) identifies and describes governance models used non-defense labs, specifically at the Department of Energy (Energy) and National Aeronautics and Space Administration (NASA)  To address the first objective, we selected four specific authorities for our review based on previous work identifying science and technology best practices and expedited lab hiring: Laboratory Initiated Research Authority  The authority provided in Section 219 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, as implemented, provides lab directors with flexibility to fund projects in four allowable categories: basic and applied research; technology transition; workforce development; and revitalization, recapitalization, or repair or minor military construction of lab infrastructure  Laboratory Enhancement Pilot Program  Section 233 of the National Defense Authorization Act for Fiscal Year 2017 established a pilot program for lab directors to propose alternative and innovative methods that might lead to more effectively managing and operating labs and authorized lab directors to waive any regulation, restriction, requirement, guidance, policy, procedure, or departmental instruction that would affect implementation of these methods unless such implementation would be prohibited by a provision of an existing statute or common law  Direct Hire Authority  Four types of direct hire authorities authorized by Congress since 2008 are intended to provide a streamlined and accelerated hiring process to allow the labs to successfully compete with private industry and academia for high-quality scientific, engineering, and technician talent  Micro-purchase Authority  The Federal Acquisition Regulation states a preference for government agencies, to purchase and pay for micro-purchases of supplies or services using the government-wide commercial purchase card up to and at the micro-purchase threshold, but micro-purchases may be conducted using any of the simplified acquisition methods  While the FAR micro-purchase threshold was generally $3,500 at the time of our review, Congress increased this threshold to $10,000 for activities of DOD science and technology reinvention laboratories in Section 217 the National Defense Authorization Act for Fiscal Year 2017  Although Congress has provided additional legislative authorities to defense lab directors to address hiring, infrastructure, and technology transition challenges, the authorities that we covered in our review are the ones that our prior and current work have shown are currently, or have the potential to be, the most critical for supporting science and technology reinvention laboratories’ innovation mission within DOD labs  DOD lab leaders use these authorities to flexibly fund projects intended to facilitate research and development; propose alternative and innovative methods that might lead to more effective lab management; directly hire personnel at DOD labs including students currently enrolled in science, technology, engineering, and mathematics (STEM) programs; and expand critical science and technology purchases using simplified acquisition methods  To identify the extent to which DOD laboratories have used these authorities as well as to identify what potential barriers existed to using these authorities, we administered a survey to 44 STRL directors (or their equivalent) to collect information on the use of these specific authorities, their perceptions about the effectiveness of those authorities, and their perceptions about any barriers to using these authorities  The members of the population surveyed were the 44 defense laboratories defined as science and technology reinvention laboratories  For the purposes of our review, we defined laboratories as inclusive of Air Force technical directorates (10), Army warfare centers (17), and Navy warfare centers (17)  We emailed questionnaires to the laboratories beginning in late March 2018, and survey data collection ended in early May 2018, with 31 labs returning completed questionnaires, for an overall response rate of 71 percent at the laboratory level  We took steps to minimize the potential errors that the practical difficulties of conducting any survey may introduce  Nonresponse error can result when a survey fails to capture information from all population members selected into a survey sample  Of the 13 questionnaires not returned, 4 were Army warfare centers, and 9 were Air Force research directorates  Throughout the data collection period, we made multiple follow-up attempts by email and phone to those labs not yet responding  The Air Force Research Laboratory (AFRL) provided a single survey response for the entire laboratory enterprise  Not all returned questionnaires may have answers to every question applicable to a respondent  However, this question-level nonresponse did not exceed one for any of the questions applicable to all 31 labs  Because we selected the entire population of laboratories for our survey, our estimates are not subject to sampling error  We developed our list of the 44 labs in our population in consultation with DOD, and are confident that none were left out, so our or survey has no known sources of coverage error  We conducted pretests of the draft questionnaire with 3 laboratories in the population and made revisions to reduce the possibility of measurement error from differences in how questions were interpreted and the sources of information available to respondents  After reviewing the answers received, we also followed up as necessary with respondents to clarify apparent inconsistencies or other possible misreports, and made changes to responses where corrections were needed  A second, independent analyst checked the accuracy of all computer analyses to minimize the likelihood of errors in data processing  To obtain additional information on this objective, we reviewed relevant legislation which established or amended these authorities and reviewed applicable DOD and service policy documentation  Further, we collected military service related information on the usage of two authorities, such as: Spending data on the use of the laboratory initiated research authority  We gathered this information from DOD-mandated reports to Congress on the use of this authority and military service officials  We determined these data to be reliable based on reviews of agency documentation collected and interviews with agency officials  Data on the usage of direct hire authorities by the service laboratories  We collected direct hire data from each of the military services including the number of direct hire authority candidates hired as well as the number of direct hire positions the laboratories were authorized to hire  We determined these data to be reliable based on reviews of agency documentation collected and interviews with agency officials  We also used select findings from our May 2018 report where we evaluated DOD’s use of hiring authorities, including direct hire authority  More information about the scope and methodology of our prior work can be found in that report  In addition, we also collected information on military service proposals to utilize the laboratory enhancement pilot program authority  To obtain further information on department- and service-level involvement in and perspectives of defense laboratory authorities and challenges, we interviewed officials responsible for the management, execution, and oversight of DOD’s science and technology enterprise, including military service labs  At the Office of the Secretary of Defense and military department headquarters level, those responsible for the management and oversight of science and technology activities, we met with officials from the: Office of the Assistant Secretary of Defense for Research and DOD Defense Laboratories Office; Office of the Deputy Assistant Secretary of the Army for Research and Office of the Deputy Assistant Secretary of the Air Force for Science, Technology, and Engineering; Office of the Assistant Secretary of the Air Force for Financial Office of the Deputy Assistant Secretary of the Navy for Research, Development, Test, and Evaluation; and Office of the Budget, within the Office of the Assistant Secretary of the Navy for Financial Management and Comptroller We also met with military department lab officials responsible for the management and execution of science and technology activities from the: Army Research, Development and Engineering Command; Army Research Laboratory; Army Aviation and Missile Research, Development, and Engineering Air Force Research Laboratory; Naval Research Laboratory; Naval Surface Warfare Center, Headquarters; and Naval Surface Warfare Center, Carderock Division To identify and describe governance models used by selected DOD- sponsored federally funded research centers (FFRDCs) and university affiliated research centers (UARCs), we focused our review on the 3 FFRDCs designated as research and development labs as well as all 13 UARCS sponsored by DOD entities  We reviewed appropriate sections of the FAR language related to FFRDCs and UARCs, DOD guidance for working with FFRDCs and UARCs, relevant contracts, and performance assessments  Further, we met with officials from the office of the Deputy Director, OSD Studies and Federally Funded Research & Development Centers Management and Office to discuss overall FFRDC and UARC management, policies, and challenges facing FFRDCs and UARCs  We interviewed officials at selected research and development FFRDCs and UARCS to discuss their experience conducting DOD research and interactions with their customers, such as defense program executive offices  We met with officials at the two major research and development lab FFRDCs—The Lincoln Laboratory at the Massachusetts Institute of Technology (MIT) and the Software Engineering Institute at Carnegie Mellon University  We also selected a university affiliated research center sponsored by the Army and Navy: The Applied Physics Laboratory at Johns Hopkins University and the Institute for Soldier Nanotechnologies also at the MIT  To identify and describe governance models by non-defense labs, we selected Energy and NASA to focus our efforts  We identified 17 Energy national labs and 4 NASA research centers conducting basic and applied research similar to DOD labs  These agencies, along with DOD, represent 3 of the top 4 agencies in terms of average federal research and development spending from fiscal years 2015 to 2017  In our August 2016 GAO Technology Readiness Assessment Guide, we drew heavily from DOD, NASA, and Energy for best practices, terminology, and examples  This contributed to our decision to focus on Energy and NASA’s research entities in this laboratory governance review  We did not include the fourth agency—the National Institutes of Health—in our review because it is not as similar to DOD  We also reviewed relevant Energy and NASA guidance as well as relevant FAR sections  At Energy, we met with officials from the National Nuclear Security Administration which is semi-autonomous entity within Energy responsible for managing the nation’s nuclear weapons and nuclear security  We also met with Officials from the Office of Science, a program office responsible for supporting energy related fundamental science and research  To gain further insights on operating structures, funding arrangements, and their overall experience we met with lab leadership at selected Energy labs which were chosen based on initial discussions with agency officials and our review of past GAO work: Oak Ridge National Laboratory, Lawrence Berkeley National Laboratory, Lawrence Livermore National Laboratory, and National Energy Technology Laboratory (the sole Energy government owned and operated laboratory) We also met with leadership from Battelle Memorial Institute, which is the sole or joint contract manager for five Energy national labs including Oak Ridge National Laboratory  In addition, Battelle is an integrated subcontractor at Lawrence Livermore National Laboratory  At NASA, we met with officials with NASA’s Science Mission Directorate and Mission Support Directorate to discuss overall research center management and operations  We also leveraged ongoing and recently completed work at GAO to gain additional insight on NASA’s operations such as human capital management  Almost all of NASA’s research, space, and space flight centers conduct research and development activities  However, we focused our review on four research centers where NASA primarily conducts its aeronautics research, which has substantial overlap with DOD activities  To gain additional insight into the experience of lab leaders at NASA research centers, we met with officials at NASA’s Glenn Research Center and Ames Research Center  In addition, we also met with officials at the NASA Jet Propulsion Center, which is the only NASA-sponsored FFRDC  We conducted this performance audit from July 2017 to December 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  Office of the Secretary of Defense (OSD) In addition to the contact named above, Christopher R  Durbin (Assistant Director); Charlie Shivers, III (Analyst-in-Charge); Emily Bond; Lorraine Ettaro; Carl Ramirez; Sylvia Schatz; Sean Seales; Brian Smith; and Robin Wilson made significant contributions to this report 


Report 2: Black lung benefits include both cash assistance and medical benefits  Maximum cash assistance payments generally ranged from about $650 to $1,300 per month in fiscal year 2017, depending on the number of dependents the miner has  Miners receiving cash assistance are also eligible for medical benefits that cover the treatment of their black-lung- related conditions, which may include hospital and nursing care, rehabilitation services, and drug and equipment charges, according to DOL documentation  DOL estimates that the average annual cost for medical treatment in fiscal year 2017 was approximately $6,980 per miner  There were about 25,700 total beneficiaries (primary and dependents) receiving black lung benefits during fiscal year 2017 (see fig  1)  The decrease in the number of beneficiaries over time has resulted from a combination of declining coal mining employment and an aging beneficiary population, according to DOL officials  Further, black lung beneficiaries could increase in the near term due to the increased occurrence of black lung disease and its most severe form, progressive massive fibrosis, particularly among Appalachian coal miners, according to HHS officials  Black lung claims are processed by DOL’s Office of Workers’ Compensation Programs  Contested claims are adjudicated by DOL’s Office of Administrative Law Judges, which issues decisions that can be appealed to the Benefits Review Board  Claimants and mine operators may further appeal these agency decisions to the federal courts  If an award is contested, claimants can receive interim benefits, which are generally paid from the Trust Fund according to DOL officials, while their claims are in the appeals process  Final awards are either funded by mine operators—who are identified as the responsible employers of claimants—or the Trust Fund, when responsible employers cannot be identified or do not pay  In fiscal year 2017, black lung claims had an approval rate of about 29 percent, according to DOL data  Of the 19,430 primary black lung beneficiaries receiving benefits during fiscal year 2017, 64 percent (12,464) were paid from the Trust Fund, 25 percent (4,798) were paid by liable mine operators, and 11 percent (2,168) were receiving interim benefits, according to DOL officials  Black Lung Disability Trust Fund revenue is primarily obtained from mine operators through the coal tax  The coal tax is imposed at two rates, depending on whether the coal is extracted from underground or surface mines  The current tax rates are $1 10 per ton of underground-mined coal and $0 55 per ton of surface-mined coal, up to 4 4 percent of the sales price  Therefore, if a ton of underground-mined coal is sold for less than $25, than the tax paid would be less than $1 10  For instance, if a ton of underground-mined coal sold for $20, than it would be taxed at 4 4 percent of the sales price, or $0 88  To a lesser extent, the Trust Fund also receives other miscellaneous revenue from interest payments, and various fines and penalties paid by mine operators, among other sources, according to DOL documentation  Coal tax revenue is collected from mine operators by Treasury’s Internal Revenue Service and then transferred to the Trust Fund where it is then used by DOL officials to pay black lung benefits and the costs of administering the program  Trust Fund expenditures include, among other things, black lung benefit payments, certain administrative costs incurred by DOL and Treasury to administer the black lung benefits program, and debt repayments  When necessary for the Trust Fund to make relevant expenditures under federal law, the Trust Fund borrows from the Treasury’s general fund  When this occurs, the federal government is essentially borrowing from itself—and hence from the general taxpayer—to fund its benefit payments and other expenditures  Multiple factors have challenged Trust Fund finances since it was established about 40 years ago  Its expenditures have consistently exceeded its revenue, interest payments have grown, and legislative actions taken that were expected to improve Trust Fund finances did not completely address its debt  Combined black lung benefit payments and program administrative costs exceeded Trust Fund revenue every year for the program’s first decade (fiscal years 1979 through 1989), resulting in the accrual of debt  During the Trust Fund’s first three fiscal years in particular, revenue covered less than 40 percent of the Trust Fund’s combined benefit payments and administrative costs  For instance, in fiscal year 1980, the Trust Fund received about $251 million in revenue and paid about $726 million in black lung benefits and administrative costs  Beginning in 1982, revenue increased as a result of the Black Lung Benefits Revenue Act of 1981 that doubled the coal tax rates from $0 50 to $1 per ton of underground-mined coal and from $0 25 to $0 50 per ton of surface-mined coal, up to 4 percent of the sales price  Even with the tax rate increase, combined benefit payments and administrative costs continued to exceed revenue throughout the 1980s (see fig  2)  As a result, the Trust Fund borrowed from Treasury’s general fund to cover the annual differences between its expenditures and revenues, and by fiscal year 1989 the Trust Fund’s outstanding debt to Treasury’s general fund exceeded $3 billion  Beginning in fiscal year 1990, Trust Fund revenue generally began to exceed combined benefit payments and administrative costs, and, in fact, total Trust Fund cumulative revenue collected from fiscal years 1979 through 2017 exceeded total cumulative benefit payments and administrative costs incurred during these years  However, interest owed from earlier years of borrowing led to more borrowing and debt  From fiscal years 1979 through 1989, the Trust Fund borrowed—primarily through 30-year term loans according to Treasury officials—from Treasury’s general fund at interest rates that varied from about 6 5 percent to about 13 9 percent  In fiscal year 1985, for instance, the Trust Fund paid about $275 million in interest, which was equal to about half of the total revenue collected that year  Since fiscal year 1990, revenue has generally exceeded combined benefit payments and administrative costs, although interest payments on the Trust Fund’s outstanding debt kept the fund in a position whereby its total expenditures continued to exceed its total revenues  As a result, the principal amount of the Trust Fund’s total outstanding debt to Treasury’s general fund increased and exceeded $10 billion by fiscal year 2008  Legislation has been enacted over the years that was expected to improve Trust Fund finances: In 1981, the Black Lung Benefits Revenue Act of 1981 doubled the coal tax rates from $0 50 cents to $1 per ton of underground-mined coal, and from $0 25 cents to $0 50 cents per ton of surface-mined coal, up to 4 percent of the sales price (as mentioned previously)  In 1986, the Consolidated Omnibus Budget Reconciliation Act of 1985 established a 5 year moratorium on interest accrual with respect to repayable advances to the Trust Fund (which we refer to as annual borrowing from Treasury’s general fund), and increased the coal tax rates to $1 10 per ton of underground-mined coal, and $0 55 per ton of surface-mined coal (up to 4 4 percent of the sales price), where they have remained since  In 2008, the EIEA included provisions that were expected to eliminate the Trust Fund’s debt  Specifically, EIEA (1) generally extended the coal tax rates at their current rates until December 31, 2018 (after which they are scheduled to decrease to their original levels of $0 50 per ton of underground-mined coal, and $0 25 per ton of surface- mined coal, up to 2 percent of the sales price); (2) provided for a one- time federal appropriation toward Trust Fund debt forgiveness (about $6 5 billion, according to DOL data); and (3) provided for the refinancing of the Trust Fund’s debt that was not forgiven as a result of EIEA (which we refer to as the Trust Fund’s legacy debt)  Specifically, the Trust Fund’s legacy debt was refinanced with more favorable interest rates, according to DOL data  Interest rates on the refinanced legacy debt range from about 1 4 percent to about 4 5 percent  The forgiveness and refinancing of Trust Fund debt along with extending the current coal tax rates through 2018 were expected to result in annual tax revenue that could be used to pay down interest and principal on the Trust Fund’s legacy debt, according to DOL and Treasury officials  These officials said that models showed that debt would be eliminated by fiscal year 2040; however, they noted that coal tax revenue has been less than originally projected due, in part, to the 2008 recession and increased market competition from other energy sources  As a result, the Trust Fund’s total expenditures continued to exceed revenue and the Trust Fund borrowed from Treasury’s general fund each year from fiscal years 2010 through 2017 to cover debt repayments expenditures  In fiscal year 2017, the Trust Fund’s total principal amount of outstanding debt, which includes its legacy debt and the amount borrowed from Treasury’s general fund that year, was about $4 3 billion (see fig  3)  Trust Fund borrowing will likely continue to increase from fiscal years 2019 through 2050 due, in part, to the scheduled coal tax rate decrease of about 55 percent that will take effect in 2019 and declining coal production, according to our moderate simulation  We simulated the effects of the scheduled 2019 tax rate decrease on Trust Fund finances through 2050, and in this report, we generally present the results of a moderate case set of assumptions (see table 1)  These simulations are not predictions of what will happen, but rather models of what could happen given certain assumptions  For more information on our simulation methodology see appendix I  In addition to the moderate case assumptions, we also simulated how Trust Fund debt could change through 2050 given various other assumptions, and the full range of results for all of our simulations are presented in appendix II  Our moderate case simulation suggests that Trust Fund revenue may decrease, from about $485 million in fiscal year 2018 to about $298 million in fiscal year 2019, due, in part, to the scheduled approximate 55 percent decrease in the coal tax  Our simulation, which incorporates EIA data on future expected coal production, also shows that annual Trust Fund revenue will likely continue to decrease beyond fiscal year 2019 due, in part, to declining coal production  Domestic coal production has declined from about 1 2 billion tons in 2008 to about 728 million tons in 2016, according to EIA  Based on these projections, our moderate simulation shows that Trust Fund annual revenue may continue to decrease from about $298 million in fiscal year 2019 to about $197 million in fiscal year 2050 (see fig  4)  With the scheduled 2019 tax rate decrease, our moderate case simulation suggests that expected revenue will likely be insufficient to cover combined black lung benefit payments and administrative costs, as well as debt repayment expenditures  Specifically, our moderate case simulation suggests that revenue may not be sufficient to cover beneficiary payments and administrative costs from fiscal years 2020 through 2050 (see fig  5)  For instance, in fiscal year 2029, simulated benefit payments and administrative costs will likely exceed simulated revenue by about $99 million  These annual deficits will likely decrease over time to about $4 million by fiscal year 2050 due, in part, to the assumed continued net decline in total black lung beneficiaries  Our simulation also therefore suggests that Trust Fund revenue may not be enough to also cover the debt repayment expenditures it must continue to make through fiscal year 2040, per the payment schedule established following the 2008 EIEA  Our moderate simulation suggests that the amount borrowed by the Trust Fund will likely increase from about $1 6 billion in fiscal year 2019 to about $15 4 billion in fiscal year 2050 (see fig  6)  Although the Trust Fund’s legacy debt decreases through fiscal year 2040, total Trust Fund expenditures—including combined benefit payments and administrative costs as well as debt repayments—will likely continue to exceed revenue which will require continued annual borrowing from Treasury’s general fund  However, the amount borrowed by the Trust Fund could vary depending, in part, on future coal production and the number of new beneficiaries and could range between about $6 billion and about $27 billion in 2050, according to our simulations (see appendix II)  We simulated three options that can affect Trust Fund finances through fiscal year 2050  Specifically, we simulated the effects of (1) adjusting the coal tax, (2) forgiving interest, and (3) forgiving debt  In each of the simulations, we compared the results of the option to a baseline in which the coal tax rates will decrease by about 55 percent, which we refer to as the scheduled 2019 tax rate decrease  We compare interest and debt forgiveness options to a baseline which assumes the scheduled 2019 tax rate decrease has taken effect, and that there is no interest or debt forgiveness  The simulated options are not intended to be exhaustive and we are not endorsing any particular option or combination of options  Using the moderate case, we simulated four options: (1) implementing the 2019 coal tax rate reduction to $0 50 per ton of underground-mined coal and $0 25 per ton of surface-mined coal; (2) maintaining the current coal tax rates of $1 10 per ton for underground-mined coal and $0 55 per ton of surface-mined coal; (3) reducing the tax rates by 25 percent (from $1 10 and $0 55); and (4) increasing these tax rates by 25 percent (see fig  7)  Increasing the tax rates by 25 percent was the only option that eliminated simulated Trust Fund debt by fiscal year 2050, according to our moderate case simulation  We simulated three interest forgiveness options including forgiving interest on (1) legacy debt, (2) annual borrowing, and (3) all debt  Our moderate case simulation suggests that forgiving interest will not eliminate simulated debt by fiscal year 2050 (see fig  8)  We simulated two debt forgiveness options by forgiving principal and interest on (1) legacy debt and (2) all debt  Our moderate case simulation suggests that both debt forgiveness options would reduce simulated Trust Fund borrowing by fiscal year 2050, but these options would not eliminate debt altogether as simulated revenue will likely not be enough to cover simulated expenditures (see fig  9)  In these cases, the Trust Fund will need to continue borrowing from Treasury’s general fund to cover annual deficits, and thus accumulate debt  While adjusting coal tax rates and forgiving interest or debt could reduce the Trust Fund’s simulated borrowing by 2050, implementing them could affect the coal industry or general taxpayers, according to stakeholders we interviewed  For instance, a coal industry representative noted that maintaining the coal tax at its current rate would continue to burden the coal industry and increasing the tax would exacerbate the burden at a time when coal production has been declining  Treasury officials noted that the costs associated with forgiving Trust Fund interest or debt would be borne by the general taxpayer since Treasury borrows from taxpayers to lend to the Trust Fund as needed  These officials also said that making a one-time federal appropriation to forgive interest or debt would be the most transparent way to satisfy the Trust Fund’s outstanding debt to Treasury’s general fund  In addition to the simulations, other options could affect the financial position of the Trust Fund including reducing black lung benefits, eliminating or adjusting the coal tax cap, or creating a variable coal tax  Our moderate case simulation suggests that completely eliminating black lung benefits as of fiscal year 2019 could reduce the Trust Fund’s borrowing from Treasury’s general fund in fiscal year 2050 from about $15 4 billion to about $6 4 billion  However, doing so would generally mean that coal tax revenue would be collected solely to fund the repayment of Trust Fund debt  Another option could be to eliminate or adjust the coal tax cap, which currently prevents mine operators from paying a coal tax of more than 4 4 percent of the price per ton of coal sold  If the coal tax cap were eliminated, for instance, mine operators would pay $1 10 per ton of underground-mined coal and $0

ground_truth: Congress created several authorities that provide DOD research labs with ways to increase efficiency and foster innovation. Senate report 114-255 contained a provision for GAO to study governance models used by federal labs. This report evaluates DOD labs' use of authorities to foster innovation and efficiency. GAO selected four authorities that recent work on best practices for science and technology management and expedited defense lab hiring have shown to be the most crucial for supporting innovation; administered a survey to 44 lab directors to gain insight into their use of the authorities; interviewed key lab officials and contractors; and reviewed relevant policies and guidance. Congress has provided the Department of Defense's (DOD) research labs with several authorities to enhance management and operations. Four authorities that GAO examined provide lab directors with greater ability to make their own decisions regarding the funding of projects, hiring, lab management, and purchasing of equipment or services. 1. Laboratory initiated research authority. This authority, as implemented, provides labs with a means to fund new science and technology projects that they consider a priority. Labs may use a percentage of all funds available to the lab and are permitted to charge customers of the lab a percentage fee of the costs for activities performed by the lab for the customer. 2. Direct hire authority. This authority enables labs to compete with private industry for high-quality talent. For example, it provides for streamlined hiring of applicants with relevant advanced degrees, or students enrolled in science, technology, engineering, and mathematics programs. 3. Laboratory enhancement pilot program authority. This authority generally allows lab directors to propose alternative methods that might lead to more effective lab management, and waive certain policies or procedures that might affect implementation of these methods. 4. Micro-purchase authority. This authority raises the threshold for small purchases for DOD research lab activities from $3,500 to $10,000 to facilitate acquisitions. While labs have used these authorities, their use has sometimes been limited, particularly with the laboratory initiated research authority. DOD lab directors at Air Force, Navy, and Army cited several obstacles that impede wider use of that authority, specifically: Air Force: Financial management officials at the Air Force stated that the service's accounting system does not currently have an automated capability to transfer the allowable percentage fee of costs to a central account at the Air Force Research Laboratory. This lack of capability, officials noted, creates a significant administrative burden related to charging these fees. Navy: In fiscal year 2017, Navy labs invested $7.3 million in lab infrastructure projects, compared to $32.9 million and $53.7 million at the Air Force and Army, respectively. Navy lab officials told us that they were restricted in their use of infrastructure funds available under the laboratory initiated research authority due to a lack of clear guidance as to whether and how to use this authority within the Capital Investment Program of the Navy Working Capital Fund. Army: The Army requires its labs to use a similar percentage of funds from two sources: (1) what it refers to as directly appropriated funds and (2) funds labs charge for customer activities. Some Army lab directors reported assessing a lower rate on customer funds than allowed so as not to drive customers away. The labs then generally charge a lower than desired rate on their directly appropriated funds, which further constrains the total funding available to them. GAO is making three recommendations to enhance DOD's use of laboratory initiated research authority, including that the Air Force assess potential accounting system improvements, the Navy clarify how labs can use the authority for infrastructure improvements, and the Army assess its policy to determine whether changes are needed to remove disincentives for labs to use the authority. DOD concurred with the recommendations.

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



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



Report 2:  55 per ton of surface-mined coal regardless of price sold, which could increase revenue  As an additional option, changing the structure of the coal tax to flexible rates that change based on an annual actuarial assessment of the Trust Fund could help to ensure that coal mine operators pay the necessary amount of tax to cover Trust Fund expenditures, without resulting in a Trust Fund balance or deficit  Multiple options could reduce the Trust Fund’s future debt and distribute the financial burden among the coal industry and general taxpayers  We simulated whether various coal tax and debt forgiveness options could balance the Trust Fund by fiscal year 2050, whereby its simulated revenue would be sufficient to cover its simulated expenditures  These options were selected, in part, based on interviews with Trust Fund stakeholders and the availability of DOL and other data  We approached these simulations from two perspectives  First, we simulated how much Trust Fund debt would need to be forgiven based on various coal tax rates  Second, we simulated the average tax collected per ton needed to balance the Trust Fund by 2050, based on certain debt forgiveness options  The simulated options are not intended to be exhaustive and we are not endorsing any particular combination of options  Our first set of options using the moderate case simulations are based on the current coal tax rates of $1 10 per ton of underground-mined coal and $0 55 per ton of surface-mined coal, and show the amount of debt forgiveness in fiscal year 2019 needed to balance the Trust Fund by fiscal year 2050 based on certain tax rates (see fig  10)  Specifically, our moderate case simulations show the following: Increasing current coal tax rates by 25 percent could balance the Trust Fund by 2050 and would likely require no debt forgiveness  For this option, the simulated coal tax revenue would likely be sufficient to cover simulated Trust Fund expenditures, including combined benefit payments and administrative costs, as well as debt repayments  However, this option would place the burden solely on the coal industry that would be paying higher taxes at a time when coal production has been declining  Maintaining current coal tax rates could balance the Trust Fund by 2050 if coupled with about $2 4 billion of debt forgiveness  This option would distribute the burden among the coal industry and general taxpayers  Decreasing current coal tax rates by 25 percent could balance the Trust Fund by 2050 if coupled with about $4 8 billion in debt forgiveness  This option would burden the coal industry less than maintaining the current tax rates, but would increase the burden on general taxpayers  Decreasing current tax rates by 55 percent, which we refer to as the scheduled 2019 tax rate decrease, would balance the Trust Fund by 2050 if coupled with about $7 8 billion in debt forgiveness  This figure comprises the Trust Fund’s total simulated outstanding debt in fiscal year 2019 ($6 6 billion), and an additional about $1 2 billion that would be required because the Trust Fund will accrue additional debt from fiscal years 2020 through 2050, according to our moderate case simulations  The coal industry would bear some of the financial burden of this option, while also placing a financial burden on general taxpayers  Our second set of options using moderate case simulations show the change in average coal tax revenue collected per ton to balance the Trust Fund by fiscal year 2050 based on certain debt forgiveness options (see fig  11)  Specifically, our moderate simulations show the following: Forgiving the Trust Fund’s legacy debt would allow for an average tax collected of about $0 59 per ton to balance the Trust Fund by 2050  Based on certain assumptions, this could be accomplished with a tax of $0 88 per ton on underground-mined coal and $0 44 per ton on surface-mined coal  Forgiving all Trust Fund debt would allow for an average tax collected per ton of coal sold of $0 47 per ton to balance the Trust Fund by 2050  Based on certain assumptions, this could be accomplished with a tax of $0 70 per ton on underground-mined coal and a tax of $0 35 per ton of surface-mined coal  We provided a draft of this report to the Departments of Labor (DOL), Treasury, and Health and Human Services (HHS) for review and comment  DOL, Treasury, and HHS provided technical comments, which we incorporated as appropriate  As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time we will send copies of this report to the appropriate congressional committees, the Secretaries of Labor, Treasury, and Health and Human Services, and other interested parties  In addition, the report will be available at no charge on GAO’s web site at http://www gao gov  If you or your staff should have any questions about this report, please contact me at (202) 512-7215 or brownbarnesc@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  We examined the extent to which (1) Black Lung Disability Trust Fund (Trust Fund) debt may change through 2050 and (2) selected options to improve its future financial position  We interviewed officials from the Departments of Labor (DOL), Treasury, and Health and Human Services (HHS), as well as representatives from the National Mining Association and the United Mine Workers of America  We then selected options to simulate based, in part, on these interviews and the availability of DOL and other data  These options included adjusting the coal tax, forgiving interest on some or all Trust Fund debt, forgiving some or all Trust Fund debt, or various combinations of these options  The options we simulated are not intended to be exhaustive and we are not endorsing any particular option or combination of options  Our simulations are based on various assumptions and simulate Trust Fund revenues and expenditures from fiscal years 2016 through 2050  To develop these simulations, we used actual and projection data from (1) DOL for fiscal years 2015 through 2040; (2) Treasury’s Office of Tax Analysis for fiscal years 2011 through 2015; (3) the Department of Energy’s Energy Information Administration (EIA) for calendar years 2015 through 2050; and (4) the Office of Management and Budget for fiscal year 2017  To simulate future Trust Fund benefit expenditures, we simulated the number of beneficiaries each fiscal year, and the annual average amount of benefits received (cash assistance and medical benefits)  To simulate the numbers of beneficiaries, we used DOL data on the (1) age distributions of miner and widow beneficiaries for fiscal year 2015; (2) mortality rates by age for miner and widow beneficiaries as of fiscal year 2015; and (3) numbers of beneficiaries—including married miners, single miners, widows, and miners receiving medical benefits only—in fiscal year 2015  We assumed—as DOL does in its Black Lung Budget and Liability Model—that all miners are men, all widows are women, and all spouses are 3 years younger than the miner  We also assumed that the age distribution of single miners is the same as for married miners, and that the age distribution of new miner and widow beneficiaries is the same as for miner and widow beneficiaries during fiscal year 2015  We used DOL’s mortality rates to simulate the number of beneficiaries of each age and type in each year, and used those numbers to then simulate the total number of beneficiaries of each type each year (see table 2)  We also assumed that there will be no new medical-benefit-only recipients  Formula The number of married miner beneficiaries age a in fiscal year y is equal to the number of new married miner beneficiaries age a in fiscal year y plus the number of married miner beneficiaries age a-1 in fiscal year y-1 who survived and whose spouse survived  The total number of married miner beneficiaries in fiscal year y is then the sum of the number of married miner beneficiaries of all ages in fiscal year y  Finally, we averaged the number of married miner beneficiaries by averaging the prior fiscal year’s total and the current fiscal year’s total  The number of single miner beneficiaries age a in fiscal year y is equal to the number of new single miner beneficiaries age a in fiscal year y plus the number of single miner beneficiaries age a-1 in fiscal year y-1 who survived plus the number of married miner beneficiaries age a-1 in fiscal year y-1 who survived but whose spouse did not survive  The total number of single miner beneficiaries in fiscal year y is then the sum of the number of single miner beneficiaries of all ages in fiscal year y  Finally, we averaged the number of single miner beneficiaries by averaging the prior fiscal year’s total and the current fiscal year’s total  The number of widow beneficiaries age a in fiscal year y is equal to the number of new beneficiaries who are widows age a in fiscal year y plus the number of widow beneficiaries age a-1 in fiscal year y-1 who survived plus the number of married miner beneficiaries age a+2 in fiscal year y-1 who did not survive but whose spouse did survive  The total number of widow beneficiaries in fiscal year y is then the sum of the number of widow beneficiaries of all ages in fiscal year y  Finally, we averaged the number of widow beneficiaries by averaging the prior fiscal year’s total and the current fiscal year’s total  The number of MBO beneficiaries of age a in fiscal year y is equal to the number of MBO beneficiaries of age a-1 in fiscal year y-1 who survived  The total number of MBO beneficiaries only in fiscal year y is then the sum of the number of MBO beneficiaries of all ages in fiscal year y  Finally, we averaged the number of MBO beneficiaries by averaging the prior fiscal year’s total and the current fiscal year’s total  To simulate future coal tax revenue, we used Treasury and EIA data to calculate (1) the amounts of underground and surface-mined coal taxed at fixed dollar amounts of $1 10 and $0 55 per ton, respectively, in 2015; (2) the amounts of underground and surface-mined coal taxed at variable dollar amounts per ton equal to 4 4 percent of the price in 2015; and (3) average prices of underground and surface-mined coal taxed at 4 4 percent of the price in 2015  We then used EIA data on projected amounts of total coal production, underground-mined coal production, lignite coal production, and coal exports, as well as projected average coal prices, for the period from 2015 through 2050 to simulate future coal tax revenues (see table 3)  We simulated other Trust Fund expenditures and revenues, including administrative costs and debt repayments (see table 4)  For our simulations, total Trust Fund expenditures are the sum of black lung benefits (cash assistance and medical benefits), total administrative costs, repayment of interest and principal on outstanding debt to Treasury’s general fund, and other expenditures  Total Trust Fund revenues are the sum of coal tax revenue and other miscellaneous revenue, and exclude annual borrowing from Treasury’s general fund  Annual borrowing from Treasury’s general fund is the difference between total Trust Fund expenditures and revenues and is assumed to be repaid with interest the following year  If total revenues are greater than total expenditures, then the Trust Fund has a balance and would not have to borrow that year  In this case, we assumed that the Trust Fund will earn interest on that balance at the same rate on which interest would accrue on annual borrowing  We simulated how the scheduled 2019 tax rate decrease and various options including adjusting the coal tax, forgiving debt interest, and forgiving debt principal and interest may affect Trust Fund finances through fiscal year 2050 (see table 5)  The options listed are not intended to be exhaustive and we are not endorsing any particular option or combination of options  We simulated option combinations for coal tax rates, interest forgiveness, and debt forgiveness to demonstrate how potential financial adjustments could affect future Trust Fund borrowing from Treasury’s general fund through fiscal year 2050  For options that involve adjusting coal tax rates, we estimated the amount of debt that would need to be forgiven in fiscal year 2019 for the Trust Fund’s revenues to be sufficient to cover its expenditures through fiscal year 2050, assuming the Trust Fund does not borrow from Treasury’s general fund after fiscal year 2018  To do so, we first calculated the real discounted present value of Trust Fund expenditures for fiscal years 2019 through 2050, including benefit payments, administrative costs, legacy debt repayments, and repayment of annual borrowing from Treasury’s general fund  Second, we calculated the real discounted present value of Trust Fund revenue for the same period, including coal tax revenue and other miscellaneous revenue  Third, we calculated debt forgiveness as the difference between the real discounted present value of Trust Fund expenditures from the first calculation and the real discounted present value of Trust Fund revenues from the second calculation  When the amount of debt forgiveness is greater than the amount of debt outstanding, the Trust Fund would need an additional cash inflow in addition to forgiveness of all outstanding debt  Amounts of debt forgiveness less than zero suggest that no debt forgiveness is required  For options involving forgiving debt (interest or principal), we estimated the average tax per ton of coal that, if implemented in fiscal year 2019, would provide the Trust Fund sufficient revenue to cover its expenditures through fiscal year 2050, assuming the Trust Fund does not receive any advances from Treasury’s general fund after fiscal year 2018  To do so, we first calculated the real discounted present value of Trust Fund expenditures for the period from fiscal year 2019 through fiscal year 2050, again including benefit payments, administrative costs, legacy debt repayments, and repayment of annual borrowing from Treasury’s general fund, minus the real discounted present value of miscellaneous revenues for the same period  Second, we calculated the real discounted present value of coal production for the same period  Third, we calculated the average tax per ton of coal as the first amount divided by the second amount  To assess the sensitivity of each option, we ran each simulation 36 times using four different sets of assumptions about the numbers of future beneficiaries and nine different sets of assumptions about future coal production and prices (see table 6)  Doing so provided a range of estimates about the Trust Fund’s future borrowing needs and provided insight on the sensitivity of its overall financial position relative to its various expenditures and revenues  The analysis also provided a range of estimates of the amount of debt forgiveness needed to bring the Trust Fund into balance by fiscal year 2050, assuming various coal tax rates, and the average tax collection per ton needed to do the same, and assuming various amounts of debt forgiveness  From the range of estimates that resulted from our sensitivity analysis, we selected cases with moderate expectations related to future Trust Fund expenditures and revenue  Specifically, for future expenditures, we assumed an average growth rate of new black lung beneficiaries for fiscal years 2003 through 2015 as a moderate case that reflects historical experience  For future revenue, we used a moderate coal production outlook based on EIA’s reference case, which reflects moderate expectations about future coal production based on various assumptions about economic growth, oil prices, technological innovation, and energy policy  We summarized the results of our simulations by showing the extent to which the Black Lung Disability Trust Fund’s (Trust Fund) balance—the sum of tax revenue and miscellaneous revenue less expenditures—may change in fiscal year 2050 for each option simulated  For example, with the scheduled 2019 tax rate decrease, our moderate case simulations suggest that the Trust Fund would likely have a deficit in fiscal year 2050 of about $15 4 billion  Multiple options could reduce the Trust Fund’s future debt and distribute the financial burden among the coal industry and general taxpayers  We simulated how various coal tax and debt forgiveness options could balance the Trust Fund by fiscal year 2050, whereby its simulated revenue would be sufficient to cover its simulated expenditures  We approached these simulations from two perspectives  First, we simulated how much Trust Fund debt would need to be forgiven based on various coal tax rates  Second, we simulated the average tax collected per ton needed to balance the Trust Fund by 2050, based on certain debt forgiveness options  For our first set of simulations, we calculated the amount of debt outstanding in fiscal year 2019 and the amount that would likely need to be forgiven in fiscal year 2019 for the Trust Fund to have sufficient revenues to cover its expenditures by fiscal year 2050, assuming that it does not borrow from Treasury’s general fund after fiscal year 2018  For example, before any options are implemented, our moderate case simulations suggest that the Trust Fund’s outstanding debt in fiscal year 2019—including both legacy debt and annual borrowing from Treasury’s general fund—would likely be about $6 6 billion (after discounting and adjusting for inflation)  Therefore, with implementation of the coal tax rate decrease of about 55 percent as scheduled in calendar year 2019, about 117 7 percent of that debt would need to be forgiven to balance the Trust Fund  In other words, balancing the Trust Fund would require forgiveness of $6 6 billion and an additional cash inflow of about $1 2 billion because the Trust Fund will accrue additional debt from fiscal years 2020 through 2050, according to our moderate case simulations (see table 8)  For our second set of simulations, we estimated the average tax per ton of coal that, if implemented in fiscal year 2019, would likely provide the Trust Fund sufficient revenues to cover its expenditures in fiscal year 2050, assuming that it does not borrow from Treasury’s general fund after fiscal year 2018  For example, if all principal and interest on Trust Fund legacy debt is forgiven, as of 2019, the estimated average tax that balances the Trust Fund is about $0 59 per ton (see table 9)  Based on certain assumptions, this could be accomplished with a tax of $0 88 per ton on underground-mined coal and $0 44 per ton on surface-mined coal  In addition to the contact named above, Blake Ainsworth (Assistant Director), Justin Dunleavy (analyst-in-charge), Angeline Bickner, Courtney LaFountain, and Rosemary Torres Lerma made key contributions to this report  Also contributing to this report were James Bennett, Melinda Bowman, Lilia Chaidez, Caitlin Cusati, Holly Dye, Alex Galuten, Carol Henn, John Lack, Emei Li, Almeta Spencer, Kate van Gelder, and Shana Wallace 
Report 2:  Furthermore, as previously discussed, the Secretary of Defense has established an 80-percent mission capability goal for critical aviation assets, including the F-35  Due to current low availability and numerous sustainment issues, the F-35 fleet will be challenged in meeting the goal  In sum, the Navy’s and Marine Corps’ significant readiness challenges have developed over more than a decade of conflict, budget uncertainty, and reductions in force structure  Both services have made encouraging progress identifying the causes of their readiness decline and have begun efforts to arrest and reverse it; however, our prior work shows that fully addressing the persistent readiness challenges will require years of sustained management attention  Our work cited today contains 25 specific recommendations to the Navy and the Marine Corps and an additional 20 recommendations to various other DOD components to assist these services in rebuilding the readiness of their forces and in modernizing for the future  Attention to these recommendations can assist the Navy and the Marine Corps as they seek to rebuild the readiness of their forces  Chairmen Wicker and Sullivan, Ranking Members Hirono and Kaine, and Members of the Subcommittees, this concludes my prepared statement  I would be pleased to respond to any questions you may have at this time  If you or your staff have questions about this testimony, please contact John H  Pendleton, Director, Defense Capabilities and Management at (202) 512-3489 or pendletonj@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement  GAO staff who made key contributions to this testimony are Suzanne Wren, Assistant Director; Clarine Allen; Steven Banovac; John Bumgarner; Chris Cronin; Benjamin Emmel; Cynthia Grant; Mae Jones; Amie Lesser; Tobin McMurdie; Shahrzad Nikoo; Carol Petersen; Cody Raysinger; Michael Silver; John E  “Jet” Trubey; and Chris Watson  Over the past 4 years, we have issued a number of reports related to Navy and Marine Corps readiness and we used them to develop this statement  Table 1 summarizes the recommendations in these reports  The Department of Defense (DOD) concurred with most of the 45 recommendations and has many actions underway  However, DOD has not fully implemented any of the recommendations to date  For each of the reports, the specific recommendations and any progress made in implementing them are summarized in tables 2 through 16  Report numbers with a C or RC suffix are classified  Report numbers with a SU suffix are sensitive but unclassified  Classified and sensitive but unclassified reports are available to personnel with the proper clearances and need to know, upon request  Navy Readiness: Actions Needed to Address Costly Maintenance Delays Facing the Attack Submarine Fleet  GAO-19-229  Washington, D C : November 19, 2018  Air Force Readiness: Actions Needed to Rebuild Readiness and Prepare for the Future  GAO-19-120T  Washington, D C : October 10, 2018  Weapon System Sustainment: Selected Air Force and Navy Aircraft Generally Have Not Met Availability Goals, and DOD and Navy Guidance Need to Be Clarified  GAO-18-678  Washington, D C : September 10, 2018  Weapon System Sustainment: Selected Air Force and Navy Aircraft Generally Have Not Met Availability Goals, and DOD and Navy Guidance Need Clarification  GAO-18-146SU  Washington, D C : April 25, 2018  Military Readiness: Update on DOD’s Progress in Developing a Readiness Rebuilding Plan  GAO-18-441RC  Washington, D C : August 10, 2018  (SECRET) Military Personnel: Collecting Additional Data Could Enhance Pilot Retention Efforts  GAO-18-439  Washington, D C : June 21, 2018  F-35 Joint Strike Fighter: Development Is Nearly Complete, but Deficiencies Found in Testing Need to Be Resolved  GAO-18-321  Washington, D C : June 5, 2018  Warfighter Support: DOD Needs to Share F-35 Operational Lessons Across the Military Services  GAO-18-464R  Washington, D C : April 25, 2018  Military Readiness: Clear Policy and Reliable Data Would Help DOD Better Manage Service Members’ Time Away from Home  GAO-18-253  Washington, D C : April 25, 2018  Military Personnel: DOD Needs to Reevaluate Fighter Pilot Workforce Requirements  GAO-18-113  Washington, D C : April 11, 2018  Military Aircraft: F-35 Brings Increased Capabilities, but the Marine Corps Needs to Assess Challenges Associated with Operating in the Pacific  GAO-18-79C  Washington, D C : March 28, 2018  (SECRET) Navy and Marine Corps Training: Further Planning Needed for Amphibious Operations Training  GAO-18-212T  Washington, DC : December 1, 2017  F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting Readiness and Cost Transparency  GAO-18-75  Washington, D C : October 26, 2017  Defense Supply Chain: DOD Needs Complete Information on Single Sources of Supply to Proactively Manage the Risks  GAO-17-768  Washington, D C : September 28, 2017  Navy and Marine Corps Training: Further Planning Needed for Amphibious Operations Training  GAO-17-789  Washington, D C : September 26, 2017  Navy Readiness: Actions Needed to Address Persistent Maintenance, Training, and Other Challenges Facing the Fleet  GAO-17-809T  Washington, D C : September 19, 2017  Naval Shipyards: Actions Needed to Improve Poor Conditions That Affect Operation  GAO-17-548  Washington, D C : September 12, 2017  Navy Readiness: Actions Needed to Address Persistent Maintenance, Training, and Other Challenges Facing the Fleet  GAO-17-798T  Washington, D C : September 7, 2017  Navy Readiness: Actions Needed to Maintain Viable Surge Sealift and Combat Logistics Fleets GAO-17-503  Washington, D C : August 22, 2017 (reissued on Oct 31, 2017)  Department of Defense: Actions Needed to Address Five Key Mission Challenges  GAO-17-369  Washington, D C : June 13, 2017  Military Readiness: Coastal Riverine Force Challenges  GAO-17-462C  Washington, D C : June 13, 2017  (SECRET) Navy Shipbuilding: Policy Changes Needed to Improve the Post-Delivery Process and Ship Quality  GAO-17-418  Washington, D C : July 13, 2017 Offshore Petroleum Discharge System: The Navy Has Not Mitigated Risk Associated with System Limitations  GAO-17-531C  Washington, D C : June 22, 2017  (SECRET) Navy Force Structure: Actions Needed to Ensure Proper Size and Composition of Ship Crews  GAO-17-413  Washington, D C : May 18, 2017  Military Readiness: DOD’s Readiness Rebuilding Efforts May Be at Risk without a Comprehensive Plan  GAO-16-841  Washington, D C : September 7, 2016  Military Readiness: DOD’s Readiness Rebuilding Efforts May Be at Risk without a Comprehensive Plan  GAO-16-534C  Washington, D C : June 30, 2016  (SECRET) Defense Inventory: Further Analysis and Enhanced Metrics Could Improve Service Supply and Depot Operations  GAO-16-450  Washington, D C : June 9, 2016  Navy and Marine Corps: Services Face Challenges to Rebuilding Readiness  GAO-16-481RC  Washington, D C : May 25, 2016  (SECRET//NOFORN) Military Readiness: Progress and Challenges in Implementing the Navy’s Optimized Fleet Response Plan  GAO-16-466R  Washington, D C : May 2, 2016  F-35 Sustainment: DOD Needs a Plan to Address Risks Related to Its Central Logistics System  GAO-16-439  Washington, D C : April 14, 2016  Navy Force Structure: Sustainable Plan and Comprehensive Assessment Needed to Mitigate Long-Term Risks to Ships Assigned to Overseas Homeports  GAO-15-329  Washington, D C : May 29, 2015  This is a work of the U S  government and is not subject to copyright protection in the United States  The published product may be reproduced and distributed in its entirety without further permission from GAO  However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately 

ground_truth: With revenue of about $450 million in fiscal year 2017, the Trust Fund paid about $184 million in benefits to more than 25,000 coal miners and eligible dependents. However, the Trust Fund also borrowed about $1.3 billion from the Treasury's general fund in fiscal year 2017 to cover its debt repayment expenditures. Adding to this financial challenge, the coal tax that supports the Trust Fund is scheduled to decrease by about 55 percent beginning in 2019. GAO was asked to review the financial positon of the Trust Fund and identify options to improve it. This report examines (1) factors that have challenged the financial position of the Trust Fund since its inception and (2) the extent to which Trust Fund debt may change through 2050, and selected options that could improve its future financial position. GAO reviewed Trust Fund financial data from fiscal years 1979 through 2017. GAO also interviewed officials from the Departments of Labor, Treasury, Health and Human Services (HHS) and representatives of coal industry and union groups. Using assumptions, such as the about 55 percent coal tax decrease and moderately declining coal production, GAO simulated the extent to which Trust Fund debt may change through 2050. GAO also simulated how selected options, such as forgiveness of debt, could improve finances. The options simulated are not intended to be exhaustive. Further, GAO is not endorsing any particular option or combination of options. GAO provided a draft of this report to DOL, Treasury, and HHS. The agencies provided technical comments, which were incorporated as appropriate. Multiple factors have challenged Black Lung Disability Trust Fund (Trust Fund) finances since it was established about 40 years ago. Its expenditures have consistently exceeded its revenues, interest payments have grown, and actions taken that were expected to improve Trust Fund finances did not completely address its debt. When necessary to make expenditures, the Trust Fund borrows with interest from the Department of the Treasury's (Treasury) general fund. Because Trust Fund expenditures have consistently exceeded revenue, it has borrowed almost every year since 1979, its first complete fiscal year, and as a result debt and interest payments increased. Legislative actions were taken over the years including (1) raising the rate of the coal tax that provides Trust Fund revenues and (2) forgiving debt. For example, the Energy Improvement and Extension Act of 2008 provided an appropriation toward Trust Fund debt forgiveness; about $6.5 billion was forgiven, according to Department of Labor (DOL) data (see figure). However, coal tax revenues were less than expected due, in part, to the 2008 recession and increased competition from other energy sources, according to DOL and Treasury officials. As a result, the Trust Fund continued to borrow from Treasury's general fund from fiscal years 2010 through 2017 to cover debt repayment expenditures. GAO's simulation suggests that Trust Fund borrowing will likely increase from fiscal years 2019 through 2050 due, in part, to the coal tax rate decrease of about 55 percent that will take effect in 2019 and declining coal production. The simulation estimates that Trust Fund borrowing may exceed $15 billion by 2050 (see figure). However, various options, such as adjusting the coal tax and forgiving interest or debt, could reduce future borrowing and improve the Trust Fund's financial position. For example, maintaining the current coal tax rates and forgiving debt of $2.4 billion could, under certain circumstances, balance the Trust Fund by 2050, whereby revenue would be sufficient to cover expenditures. However, a coal industry representative said that maintaining or increasing the coal tax would burden the coal industry, particularly at a time when coal production has been declining. Further, Treasury officials noted that the costs associated with forgiving Trust Fund interest or debt would be paid by taxpayers.