You are given two reports by the government agency.  

Report 1:
T he federal government pays benefits to coal miners affected by coal workers' pneumoconiosis (CWP, commonly referred to as black lung disease) and other lung diseases linked to coal mining in cases where the responsible mine operators are not able to pay. Benefit payments and related administrative expenses are paid out of the Black Lung Disability Trust Fund. The primary source of revenue for the trust fund is an excise tax on coal produced and sold domestically. If excise tax revenue is not sufficient to finance Black Lung Program benefits, the trust fund may borrow from the general fund of the Treasury, which contains federal receipts not earmarked for a specific purpose. For 2018, the tax rates on coal were $1.10 per ton of underground-mined coal or $0.55 per ton of surface-mined coal, limited to 4.4% of the sales price. Starting in 2019, under current law, these tax rates are $0.50 per ton of underground-mined coal or $0.25 per ton of surface-mined coal, limited to 2% of the sales price. This decline in the excise tax rates will likely put additional financial strain on a trust fund that already borrows from the general fund to meet obligations. The decline in domestic coal production, recent increases in the rate of CWP, and bankruptcies in the coal sector also contribute to the financial strain on the trust fund. This report provides background information and policy options to help inform the debate surrounding the coal excise tax rate, and other considerations related to the Black Lung Disability Trust Fund. The report begins with an overview of the federal black lung program, providing information on black lung disease and benefits under the program. The report proceeds to examine Black Lung Disability Trust Fund revenues, focusing on the coal excise tax and its history. The report closes with a discussion of policy options, evaluating various revenue- and benefits-related policy options that could improve the fiscal outlook of the Black Lung Disability Trust Fund. The Black Lung Disability Trust Fund is used to finance the payment of federal Black Lung Program benefits under Part C of the Black Lung Benefits Act (BLBA) when a responsible coal operator does not meet its obligations under the law to pay benefits. Coal workers' pneumoconiosis (CWP, commonly referred to as black lung disease) is an interstitial lung disease caused by the inhalation of coal dust. Like in other types of pneumoconioses, the inhalation of coal dust results in the scarring of the lung tissue and affects the gas-exchanging ability of the lungs to remove carbon dioxide and take oxygen into the bloodstream. Exposure to coal dust over an extended period of time can lead to CWP and continued exposure can lead to the progression from the early stages of CWP referred to as "simple CWP," to more advanced stages of scarring referred to as "complicated CWP" or progressive massive fibrosis (PMF). There is no cure for CWP and PMF. CWP can lead to loss of lung function, the need for lung transplantation, and premature death. CWP can be identified by observing light spots, or opacities, in x-ray images of the lungs and can be classified using guidelines established by the International Labour Organization (ILO). Despite technological advances in mining dust control, mandatory chest x-rays for miners, free CWP surveillance offered to miners by the National Institute for Occupational Safety and Health (NIOSH), the enactment of numerous pieces of mine safety and health legislation, and the promulgation and enforcement of mine safety and health standards by the Mine Safety and Health Administration (MSHA), CWP persists in American coal miners, especially those in the Appalachian region. After reductions in rates of PMF in the 1990s, this advanced form of CWP has recently been found in Central Appalachia at rates not seen since the early 1970s. In 2017 researchers discovered, among coal miners mostly living in Kentucky and Virginia and served by three federally funded Black Lung Clinics in Virginia, what may be the largest cluster of PMF ever recorded. This cluster of miners with PMF includes a relatively high number of miners with less than 20 years of mining experience as well as cases of PMF in current miners. The occurrence of this advanced stage of CWP in short-tenured and current miners is noteworthy since MSHA standards require that any miner with evidence of CWP be given the option, without loss of compensation or other penalty, to work in an area of the mining operation in which the average concentration of coal dust in the air is continuously maintained at or below an established level that is lower than the permissible exposure level for all miners with the goal of preventing the progression of CWP. The federal Black Lung Program was created in 1969 with the enactment of Title IV of the Federal Coal Mine Health and Safety Act of 1969 (Coal Act, P.L. 91-173, later renamed the Federal Mine Safety and Health Act of 1977 by P.L. 95-164 ). Section 401 of the Coal Act provides the congressional justification for the federal Black Lung Program and cites the lack of benefits for disability and death caused by CWP provided by existing state workers' compensation systems as justification for the creation of a federal program. This section also states that the program is intended to be a cooperative effort between the federal government and the states. The Coal Act also established mandatory safety and health standards for coal mines, including standards limiting exposure of miners to coal dust and giving miners with CWP the option of being moved, without loss of compensation or penalty, to an area of the mine with lower dust concentrations. The Coal Act was later amended by the Black Lung Benefits Act of 1972 (BLBA, P.L. 92-303). The Coal Act established Part B of the federal Black Lung Program to provide cash benefits to miners totally disabled due to CWP and to the survivors of miners who die from CWP. Part B only applies to cases filed on or before December 31, 1973. Part B benefits are paid out of general revenue and were initially administered by the Social Security Administration (SSA). Today, with the exception of a small number of pending appellate cases, Part B benefits are administered by the Department of Labor (DOL), Office of Workers' Compensation Programs (OWCP). The Coal Act established Part C of the Federal Black Lung Program for cases filed after December 31, 1973, and was later amended by the BLBA. Under Part C of the BLBA, all claims for benefits for disability or death due to CWP are to be filed with each state's workers' compensation system, but only if such systems have been determined by DOL as providing benefits that are equivalent to or greater than the cash benefits provided by the federal government under Part B of the BLBA and the medical benefits provided to disabled longshore and harbor workers under the federal Longshore and Harbor Workers' Compensation Act (LHWCA). If a state's workers' compensation system is not determined by DOL to meet these standards, then Part C benefits are to be paid by the each miner's coal employer, or, if no such employer is available to pay benefits, by the federal government. In 1973, Maryland, Kentucky, Virginia, and West Virginia submitted their state workers' compensation laws to DOL for approval, but were denied. To date, no state workers' compensation system has been approved by DOL under Part C of the BLBA. Because no state's workers' compensation system has been determined to be sufficient to pay benefits under Part C, each operator of an underground coal mine is responsible for the payment of benefits to that operator's miners. Operators are required to provide for these benefits either by purchasing insurance for benefits or through self-insurance approved by DOL. A self-insured operator is required to purchase an indemnity bond or provide another form of security (such as a deposit of negotiable securities in a Federal Reserve Bank or the establishment of a trust) in an amount specified by DOL. In order to be approved for self-insurance, federal regulations require that a mine operator have been in business for at least the three previous years and have average assets over the previous three years that exceed current liabilities by the sum of expected benefit payments and annual premiums on the indemnity bond. When a claim for benefits is approved, benefits are to be paid by the "responsible" operator, which is generally the last coal operator to employ the miner. If a company has acquired the assets of a mine operator, then that company is considered a "successor operator" and is responsible for the payment of claims related to the original operator. The federal government pays benefits in cases in which the responsible operator no longer exists and has no successor operator, or is unable to pay benefits. The federal government pays benefits when an operator has not made payment within 30 days of a determination of eligibility or when benefits are otherwise due to be paid. Initially, under Part C of the Coal Act, these federal benefits were paid out of general revenue. However, pursuant to the Black Lung Benefits Revenue Act of 1977 ( P.L. 95-227 ), these benefits are now paid from the Black Lung Disability Trust Fund established by this law and primarily financed by an excise tax on coal. If a responsible operator can later be identified, the trust fund is authorized by law to seek to recover from this operator the amount of benefits paid by the trust fund and any interest earned on these amounts. The trust fund is also used for the following federal Black Lung Program-related expenses: the payment of benefits for miners whose last coal mine employment was before January 1, 1970; reimbursement to the Treasury for the costs of Part C benefits paid from general revenue before April 1, 1978, for periods of benefit eligibility after January 1, 1974; the repayment and payment of interest on advances made from the general fund to the trust fund; the payment of administrative expenses related to Part C of the BLBA and the coal excise tax incurred after March 1, 1978; and the reimbursement of coal operators who paid Part C benefits before April 1, 1978, for miners whose last coal mine employment ended before January 1, 1970. A miner is eligible for benefits if that miner is totally disabled due to pneumoconiosis arising out of coal mine employment. The survivors of a miner are eligible for benefits if the miner's death was due to pneumoconiosis arising out of coal mine employment. Benefits are only available to miners and their survivors. The BLBA defines a miner as any individual who works or has worked in or around a coal mine or coal preparation facility in the extraction or preparation of coal. Such term also includes an individual who works or has worked in coal mine construction or transportation in or around a coal mine, to the extent such individual was exposed to coal dust as a result of such employment. Thus, other workers who may be exposed to coal dust in their work, such as railroad workers or workers at coal-fired power plants are not eligible for benefits. Persons who live near coal mines or power plants are also not eligible for benefits even if they are exposed to coal dust. In addition, while a miner's family members may receive benefits as survivors and the number of family members can increase the amount of a miner's monthly benefits, family members may not claim benefits on their own due to exposure to coal dust in the home such as from cleaning the miner's soiled clothing. The BLBA defines pneumoconiosis for the purposes of benefit eligibility as "a chronic dust disease of the lung and its sequelae, including respiratory and pulmonary impairments, arising out of coal mine employment." The BLBA directs the Secretary of Labor to develop, through regulations, standards for determining if a miner is totally disabled due to pneumoconiosis or died due to pneumoconiosis. The federal Black Lung Program regulations provide that the definition of pneumoconiosis includes medical or "clinical" pneumoconiosis and statutory or "legal" pneumoconiosis. Clinical pneumoconiosis is defined as follows: "Clinical pneumoconiosis" consists of those diseases recognized by the medical community as pneumoconioses, i.e., the conditions characterized by permanent deposition of substantial amounts of particulate matter in the lungs and the fibrotic reaction of the lung tissue to that deposition caused by dust exposure in coal mine employment. This definition includes, but is not limited to, coal workers' pneumoconiosis, anthracosilicosis, anthracosis, anthrosilicosis, massive pulmonary fibrosis, silicosis or silicotuberculosis, arising out of coal mine employment. Legal pneumoconiosis is defined as any chronic lung disease or impairment and its sequelae arising out of coal mine employment. This definition includes, but is not limited to, any chronic restrictive or obstructive pulmonary disease arising out of coal mine employment. Through these definitions, DOL has established that benefits are available not just to miners with CWP, but also to those miners with other respiratory diseases arising out of coal mine employment such as chronic obstructive pulmonary disease (COPD) even though these diseases are not pneumoconioses and may be linked to other factors unrelated to exposure to coal dust such as cigarette smoking. The BLBA contains five presumptions used to determine if a miner is eligible for black lung benefits. Three of these presumptions are "rebuttable," meaning that, in the absence of any contrary evidence, eligibility is presumed. One presumption is "irrebutable" and eligibility for Black Lung program benefits is established if the statutory requirements of the presumption are met. Three of these presumptions apply to current Black Lung Program claims while two apply only to cases filed before the end of 1981. Table 1 provides a summary of the following five presumptions provided by the BLBA. 1. A rebuttable presumption that the pneumoconiosis of a miner who was employed in mining for at least 10 years was caused by his or her employment. 2. A rebuttable presumption that the death of a miner who worked in mining for at least 10 years and who died of any respirable disease, was due to pneumoconiosis. This presumption does not apply to claims filed on or after January 1, 1982, the effective date of the Black Lung Benefits Amendments of 1981 ( P.L. 97-119 ). 3. An irrebuttable presumption that a miner with any chronic lung disease which meets certain statutory tests or diagnoses is totally disabled due to pneumoconiosis or died due to pneumoconiosis. 4. A rebuttable presumption that a miner employed in mining for at least 15 years, and who has a chest x-ray that is interpreted as negative with respect to certain statutory standards but who has other evidence of a totally disabling respiratory or pulmonary impairment, is totally disabled due to pneumoconiosis or died due to pneumoconiosis. This presumption may only be rebutted by the Secretary of Labor establishing that the miner does not or did not have pneumoconiosis or that the miner's respiratory or pulmonary impairment did not arise out of connection to mine employment. 5. A presumption that a miner who died on or before March 1, 1978, and who was employed in mining for at least 25 years before June 30, 1971, died due to pneumoconiosis, unless it is established that at the time of the miner's death, he or she was not at least partially disabled due to pneumoconiosis. This presumption does not apply to claims filed on or after June 29, 1982, which is 180 days after the effective date of the Black Lung Benefits Amendments of 1981. This presumption is not listed in the law as either rebuttable or irrebuttable. The Patient Protection and Affordable Care Act (commonly referred to as the Affordable Care Act (ACA), P.L. 111-148 ) included two provisions that amended the BLBA to reinstate one of the eligibility presumptions and a provision affecting survivors' benefits. The effect of these changes was to increase the opportunity to establish eligibility through the statutory presumptions and make it easier for certain survivors to receive benefits. Pursuant to Section 202(a) of the Black Lung Benefits Amendments of 1981, the fourth presumption did not apply to cases filed on or after January 1, 1982. Section 1556(a) of the ACA removed the prohibition on applying the fourth presumption to cases filed on or after January 1, 1982. It is expected that this ACA provision will increase the number of miners eligible for benefits. The BLBA provides that, for Part C claims, the survivors of a miner who was determined to be eligible to receive benefits at the time of his or her death are not required to file new claims for benefits or revalidate any claim for benefits, thus permitting the payment of survivors' benefits in these cases even if the miner's death was not caused by pneumoconiosis. Pursuant to Section 203(a)(6) of the Black Lung Benefits Amendments of 1981, this provision did not apply to claims filed on or after January 1, 1982. Section 1556(b) of the ACA removed from this provision the exception for claims filed on or after January 1, 1982. It is expected that this ACA provision will increase the number of survivors eligible for benefits. The amendments to the BLBA provided in Section 1556 of the ACA apply to any claims filed under Part B or C of the act after January 1, 2005, that were pending on or after March 23, 2010, the date of enactment of the ACA. Eligible miners receiving benefits under Parts B and C are entitled to medical coverage for their pneumoconiosis and related disability. This medical coverage is provided at no cost to the miner and can generally be obtained from the miner's choice of medical providers. Eligible miners are also entitled to cash disability benefits. The basic benefit rate is set at 37.5% of the basic pay rate at GS-2, Step 1, on the federal pay schedule without any locality adjustment. If the miner has one dependent (a spouse or minor child) the miner is eligible for a benefit of 150% of the basic benefit. A miner with two dependents is eligible for 175% of the basic benefit and a miner with three or more dependents is eligible for 200% of the basic benefit. Benefits may also be paid to the divorced spouse of a miner if the marriage lasted at least 10 years and the divorced spouse was dependent on the miner for at least half of the spouse's support at the time of the miner's disability. A child is considered a dependent until the child marries, or reaches age 18, unless the child is either disabled using the Social Security Disability Insurance (SSDI) definition of disability or is under the age of 23 and a full-time student. The benefit rates are adjusted whenever there are changes to the federal employee pay schedules, but are not separately adjusted to reflect changes in the cost of living. Table 2 provides the benefit rates for 2019. Benefits are offset by state workers' compensation or other benefits paid on account of the miner's disability or death due to pneumoconiosis. Part C benefits, but not Part B benefits, are considered workers' compensation for the purposes of reducing a miner's SSDI benefits. The total amount paid in cash disability benefits has fallen over time, as illustrated in Figure 1 . More is paid in cash disability benefits than is paid in medical benefits. Certain survivors of a miner whose death was due to pneumoconiosis are eligible for cash benefits. In the case of a surviving spouse or divorced spouse, the spouse's benefit is equal to what the miner would have received and is based on the number of dependents of the spouse as provided in Table 2 . If there is no surviving spouse, then benefits are awarded to the surviving minor children in equal shares. If there are no surviving minor children, then benefits can be paid to the miner's dependent parents or dependent siblings. If there are no eligible survivors, no benefits are paid upon the miner's death and benefits do not go to the miner's estate or to any other person, including a person named by the miner in a will. The number of miners and survivors receiving benefits has declined over time, as illustrated in Figure 2 . The primary revenue source for the Black Lung Disability Trust Fund is a per-ton excise tax on coal. Historically, the coal excise tax has not generated enough revenue to meet the trust fund's obligations. Thus, additional funds have been provided from the general fund of the Treasury. The general fund includes governmental receipts not earmarked for a specific purpose, the proceeds of general borrowing, and is used for general governmental expenditures. Internal Revenue Code (IRC) Section 4121 imposes the black lung excise tax (BLET) on sales or use of domestically mined coal. Generally, a producer that sells the coal is liable for the tax. Producers that use their own domestically mined coal, such as integrated utilities or steel companies, are also liable for the tax. The tax rate depends on how coal is mined. Effective January 1, 2019, the tax on underground-mined coal is the lesser of (1) $0.50 per ton, or (2) 2% of the sale price. The tax on surface-mined coal is the lesser of (1) $0.25 per ton, or (2) 2% of the sales price. Before 2019, the tax rates were $1.10 per ton for coal from underground mines or $0.55 per ton for coal from surface mines, with the tax being no more than 4.4% of the sale price. In FY2017, $229 million was collected on coal mined underground (see Figure 3 ). Nearly all of this coal was taxed at the $1.10 per ton rate. In FY2017, $200 million was collected on surface-mined coal. Just over half of this coal was taxed at the $0.55 per ton rate, with the rest subject to the 4.4% of sales price maximum tax. On January 1, 2019, the BLET rates declined to their current levels. The rates that took effect January 1, 2019, would also have taken effect if the Black Lung Disability Trust Fund had repaid, with interest, all amounts borrowed from the General Fund of the Treasury. The tax is imposed on "coal from mines located in the United States" and does not apply to imported coal. The tax is designed to support the Black Lung Disability Trust Fund for domestic miners. Very little domestically consumed coal is imported. The BLET also does not apply to exported coal under the Export Clause of the United States Constitution. A credit or refund can be claimed if coal is taxed before it is exported. Black lung excise tax collections have generally declined in recent years (see Figure 3 ). In FY2009, more than $650 million was collected from the BLET. In FY2017, collections were about $429 million. The decline in BLET collections follows the general decline in U.S. coal production. As the price of coal rose in the 2000s, coal mined underground tended to pay the tax at a fixed rate of $1.10 per ton, as opposed to paying 4.4% of the sales price. In the years beyond 2018, coal excise tax receipts are expected to fall sharply, reflecting the decrease in the coal excise tax rate (see Figure 3 ). The excise tax on coal was established to help ensure the coal industry shared in the social costs imposed by black lung disease. Over time, the rate of the tax has been increased, in an effort to provide sufficient revenue to meet this objective. The Black Lung Benefits Revenue Act of 1977 ( P.L. 95-227 ) first imposed the Section 4121 excise tax on coal. When enacted, the tax was $0.50 per ton for coal from underground mines, and $0.25 per ton for coal from surface mines. The tax was limited to 2% of the sales price. The tax was effective for sales after March 31, 1978. Before P.L. 95-227 was enacted there was considerable debate surrounding how black lung benefits programs should be financed. Various mechanisms to shift the costs of the black lung benefits program to the coal industry and its customers were considered. These debates ultimately led to the establishment of the Black Lung Disability Trust Fund and the related excise tax on coal. There was also debate about how to structure the proposed tax. Some suggested a graduated tax, with higher rates imposed on coal with a higher British thermal unit (Btu) content, as such coal was believed to be more likely to cause black lung disease. There were concerns, however, that such a tax could be difficult to administer. Other proposals suggested that coal be subject to a uniform rate, with coal mined from underground deposits subject to a higher rate than other coal (including lignite). A concern with this approach was that coal prices vary substantially per ton for different types of coal (lignite is less expensive than anthracite), meaning that the tax as a percent of the sales price could differ substantially across different types of coal. One answer to this concern is to impose an ad valorem tax, or a tax based on the sales price. Another approach that was considered was to impose a "premium rate" at a level that would fully finance the Black Lung Disability Trust Fund, giving authority to the Department of Labor to adjust the fee as necessary. The tax as enacted was the lesser of the per-unit price or the ad valorem rate of 2%. In the early 1980s, it was observed that coal excise tax revenues were not sufficient to meet the trust fund's obligations. The Black Lung Benefits Revenue Act of 1981 ( P.L. 97-119 ) doubled the excise tax rates to $1.00 per ton for coal from underground mines, and $0.50 per ton for coal from surface mines, not to exceed 4% of the sales price. The higher rates were effective January 1, 1982. The doubled rates were temporary, and scheduled to revert to the previous rates on January 1, 1996. Further, the rates could be reduced earlier if the trust fund repaid all advances and interest from the general fund of the Treasury. A stated goal of this legislation was to eliminate the Black Lung Disability Trust Fund's debt. The Consolidated Omnibus Budget Reconciliation Act of 1985 ( P.L. 99-272 ) again increased the BLET rates to $1.10 for underground-mined coal, and $0.55 for surface-mined coal, not to exceed 4.4% of the sales price. The Omnibus Budget Reconciliation Act of 1987 ( P.L. 100-203 ) extended these rates through 2013. Increased excise tax rates on coal were again extended in 2008. Current-law rates were extended through 2018 as part of the Emergency Economic Stabilization Act of 2008 (EESA; P.L. 110-343 ). When extending the increased rates, Congress reiterated the original intent of establishing trust fund financing for black lung benefits, observing that it is "to reduce reliance on the Treasury and to recover costs from the mining industry." It was also observed that the program's expenses had continued to exceed revenues over time, and that the debt to the Treasury was not likely to be paid off by 2013. For these reasons, "the Congress believe[d] that it [was] appropriate to continue the tax on coal at the increased rates beyond the expiration date." When receipts of the trust fund are less than expenditures, advances are appropriated from the general fund of the Treasury to the trust fund. These advances are repayable, and interest charged on these advances is also payable to the general fund. The Consolidated Omnibus Budget Reconciliation Act of 1985 ( P.L. 99-272 ) provided a five-year forgiveness of interest on debt owed to the Treasury's general fund. As a result, the principal amount of trust fund debt outstanding was relatively unchanged throughout the late 1980s. The moratorium on interest payments ended September 30, 1990. Throughout the 1990s and into the 2000s, the cumulative end-of-year debt of the trust fund grew, and the trust fund continued to receive repayable advances from the general fund to cover expenses. The trust fund was subject to financial restructuring when the current excise tax rate was extended until January 1, 2019, in EESA. The Black Lung Disability Trust Fund debt was restructured in FY2009. Essentially, the partial forgiveness and restructuring allowed the trust fund to refinance outstanding repayable advances and unpaid interest on those advances. As a result of the partial forgiveness and refinancing, the cumulative debt was reduced from $10.4 billion at the end of FY2008 to $6.2 billion by the end of FY2009. At the time of the restructuring it was expected that the trust fund's debt would be fully eliminated by FY2040. The trust fund's cumulative debt has trended downward since the restructuring (see Figure 4 ). However, coal excise tax revenue has been less than anticipated in recent years. As a result, current projections suggest that the trust fund debt will rise over time when considering annual borrowing as well as legacy debt. The trust fund's debt is therefore not on a path to be eliminated. By FY2050, the Government Accountability Office (GAO) projects the trust fund's debt will be $15.4 billion without any changes in current policy. In addition to revenue from the BLET and repayable general fund advances, the trust fund receives revenue from the collection of certain fines, penalties, and interest paid by coal operators and miners and reimbursements from responsible operators. Part C of the BLBA authorizes the following fines and penalties for violations of the act: a civil penalty of up to $1,000 per day for a mine operator's failure to secure benefits through insurance or approved self-insurance; a fine of up to $1,000 upon conviction of the misdemeanor offense of knowingly destroying or transferring property of a mine operator with the intent to avoid the payment of benefits for which the mine operator is responsible; a fine of up to $1,000 upon conviction of the misdemeanor offense of making a false or misleading statement or representation for the purposes of obtaining benefits; and a civil penalty of up to $500 for a mine operator's failure to file a report on miners who are or may be entitled to benefits as required by DOL. The amount of these penalties and fines, as well as interest assessed, is paid into the trust fund. In FY2017, trust fund receipts from fines, penalties, and interest totaled $1.2 million. This is a small source of trust fund revenue relative to the coal excise tax, which generated $428.7 million in trust fund revenues in FY2017. The trust fund is authorized to begin paying benefits within 30 days if no responsible operator has begun payment. If, after paying benefits, DOL is able to identify a responsible operator, the trust fund may seek to collect from that operator the costs of benefits already paid by the trust fund and interest assessed on this amount. The amount of these collections is paid into the trust fund. In FY2017, $19.9 million was collected from responsible mine operators. The amount collected from responsible mine operators has fluctuated over time, but has averaged about 1% of total receipts since 1995. Various factors have contributed to the ongoing situation of trust fund expenditures exceeding trust fund revenues. Throughout the 1980s, black lung benefit payments and administrative expenditures exceeded trust fund revenue. As a result, the trust fund accumulated debt. As discussed above, over time, various efforts have been made to improve the fiscal condition of the trust fund. However, as of the end of FY2017, the trust fund remains in debt. The trust fund's cumulative debt at the end of FY2017 was $3.1 billion. The trust fund also borrowed $1.3 billion from the general fund that same year. Projections suggest that borrowing from the general fund will increase over the next few years, even as cumulative (or legacy) debt is paid down. Under the current excise tax rates, benefit payments and administrative expenses will be approximately equal to trust fund revenues in FY2020 through FY2022 (see Figure 5 ). However, revenues are not projected to be sufficient to repay debt, and expenses are projected to rise over time when debt and interest expenses are included. Specifically, by FY2022, it is projected that the trust fund will borrow $2.6 billion in repayable advances from the general fund. There are various policy options that Congress might consider to improve the fiscal condition of the Black Lung Disability Trust Fund. Broadly, increasing taxes on the coal industry (or maintaining 2018 rates) would pass the costs associated with paying black lung benefits onto the coal industry. Alternatively, forgiving trust fund interest or debt or financing black lung benefits out of general fund revenues would pass the costs of federal black lung benefits onto taxpayers in general. Another option would be to reduce federal black lung benefits. Additional revenue would likely need to be provided to the trust fund if the trust fund is to pay for past black lung benefits and maintain current benefit levels. Additional revenue may be needed even if past debt is forgiven (or assumed by the general fund), as anticipated trust fund revenues are not likely to be sufficient to cover anticipated trust fund expenditures. As discussed above, in the past, Congress and the President have opted to increase the excise tax on coal to address shortfalls in the Black Lung Disability Trust Fund. These increased rates have been temporary, and scheduled to revert back to the reduced rate if the trust fund's debt is eliminated. Congress has chosen to extend the increased rates beyond their scheduled expiration when the trust fund is in debt. One option would be to extend 2018 rates.. The GAO projects that if 2018 coal excise tax rates are extended, the trust fund will have a debt of $4.5 billion in 2050 (see "GAO Options for Improving Trust Fund Finances" below). GAO projections suggest that increasing 2018 tax rates by 25% would eliminate the trust fund's debt, leaving the trust fund with a surplus of $0.6 billion in 2050. An alternative way to raise revenue from the coal industry is to scale back or eliminate various tax expenditures, or tax preferences, from which the coal industry benefits. For example, coal producers benefit from being able to expense exploration and development costs and are able to recover costs using percentage depletion (depletion based on revenue from the sale of the mineral asset) instead of cost depletion (depletion based on the amount of the mineral asset exhausted and the amount invested in the asset). The Obama Administration regularly proposed repealing these tax incentives as part of the Administration's annual budget. It could be difficult to assign the revenues raised via the repeal of tax benefits to the trust fund. With an excise tax, it is straightforward to identify the revenue generated by the tax and earmark the revenue for a trust fund. It is not as straightforward to determine the amount of revenue that is raised through the repeal of an income tax expenditure, or direct the additional revenue raised because a certain preference is no longer in the code to a trust fund. Repeal of coal-industry tax benefits could, however, be used to offset the cost of a one-time transfer from the general fund to the trust fund. Revenue from various sources, including the general fund, could be used to supplement trust fund revenue generated from current sources. General fund revenues are not earmarked for a specific purpose, and there is generally no direct link between the source of general fund revenue and the government good or service provided. Black lung benefits were paid out of general revenue before the trust fund was established in 1977. Trust funds are generally established when there is a link between the government benefits or services being provided and the revenue source funding those benefits or services. The Black Lung Disability Trust Fund was established because Congress believed that the costs of the part C black lung program should be borne by the coal industry. Financing black lung benefits with general fund revenue would weaken the link between the industry and black lung benefits, while reducing the burden on the industry associated with paying for black lung benefits. In the past the Black Lung Disability Trust Fund's fiscal outlook has been improved through interest and debt forgiveness. As discussed above, in the late 1990s, there was a five-year forgiveness of interest on debt owed to the Treasury's general fund. More recently, debt was forgiven as part of the 2008 restructuring of the trust fund's debt. The GAO projects that if all current debt were forgiven, the trust fund would accumulate $2.3 billion in new debt by 2050. If all interest were forgiven, the trust fund debt is projected to be $5.8 billion by 2050. Forgiving the trust fund's interest or debt obligations would shift the burden of paying for black lung disability benefits from the coal industry to general taxpayers. However, a one-time appropriation to forgive interest or debt is a transparent option for satisfying the trust fund's obligations to the general fund. The primary expenditures of the trust fund are for the payment of Part C benefits to miners in cases in which there is no responsible operator. In order to reduce expenditures and improve the long-term financial health of the trust fund, Congress could consider several options to reduce the generosity and scope of benefits or increase the ability of the federal government to ensure that coal operators, even those who are in the bankruptcy process, pay benefits for their miners. A reduction in the amount of Part C benefits would result in lower Part C expenditures from both responsible coal operators and the trust fund. However, as compared to other workers' compensation benefits, Part C benefits are relatively low. The basic Part C benefit rate for a single miner is equal to 37.5% of the base rate of pay for federal employees at the GS-2, Step 1 level. For 2019 this benefit is just over $660 per month, or under $8,000 per year. In the majority of state workers' compensation programs, the basic benefit rate is set at two-thirds of the worker's pre-disability wage, subject to statutory minimums and maximums. The other workers' compensation programs administered by DOL, the LHWCA, and the Federal Employees' Compensation Act (FECA) use two-thirds of a worker's pre-disability wage as the basis for their benefits. A federal worker with a spouse or dependent in the FECA program is entitled to 75% of his or her pre-disability wage. The minimum benefit for total disability or death in the FECA program, 75% of GS-2, Step 1, is twice the amount of the Part C benefit rate. In addition, unlike the other federal workers' compensation programs and many state programs, there is no automatic adjustment to Part C benefits to reflect increases in the cost of living. Part C benefits instead increase only when federal pay rates are increased. The eligibility of miners and survivors to Part C benefits could be restricted to reduce expenditures from responsible operators and the trust fund. In 1981, Congress enacted several eligibility restrictions to miners and survivors as part of the Black Lung Benefits Revenue Act of 1981, to address concerns about the financial insolvency of the trust fund. Specifically, this law removed the following three eligibility presumptions for new claims going forward: A rebuttable presumption that the death of a miner who worked in mining for at least 10 years and who died of any respirable disease, was due to pneumoconiosis (listed as presumption 2 in Table 1 ). A rebuttable presumption that a miner employed in mining for at least 15 years, and who has a chest x-ray that is interpreted as negative with respect to certain statutory standards but who has other evidence of a totally disabling respiratory or pulmonary impairment, is totally disabled due to pneumoconiosis, or died due to pneumoconiosis. This presumption may only be rebutted by the Secretary of Labor establishing that the miner does not or did not have pneumoconiosis or that the miner's respiratory or pulmonary impairment did not arise out of connection to mine employment (presumption 4 in Table 1 ). A presumption that a miner who died on or before March 1, 1978, and who was employed in mining for at least 25 years before June 30, 1971, died due to pneumoconiosis, unless it is established that at the time of the miner's death, he or she was not at least partially disabled due to pneumoconiosis (presumption 5 in Table 1 ). In addition to removing three of the five existing eligibility presumptions, the 1981 law also removed the right of the survivors of a miner who is determined to be eligible for Part C benefits at the time of his or her death to receive survivors' benefits without filing a new claim, thus permitting the payment of survivors' benefits in the case of a current beneficiary, even if the beneficiary's death is not proven to be linked to pneumoconiosis. Two of the restrictions put in place by the 1981 legislation were later removed by the ACA. The ACA reinstated the fourth eligibility presumption and expanded rights for survivors' benefits, thus expanding eligibility for both miners and certain survivors. Under Part C of the BLBA, the federal government may recover the costs of benefits, and interest accrued on those benefits, paid by the trust fund from identified responsible operators. In addition, Part C allows the federal government to place a lien on the property and rights to property of an operator that refuses to pay the benefits and interest it owes to the trust fund. In the case of a bankruptcy or insolvency proceeding, this lien is to be treated in the same manner as a lien for taxes owed to the federal government. However, in a 2016 letter to the Comptroller General requesting a GAO review of the trust fund, Representatives Bobby Scott, Ranking Member of the House Committee on Education and the Workforce, and Sander Levin, Ranking Member of the House Committee on Ways and Means, claimed that the number of current and potential bankruptcies among coal operators is placing stress on the trust fund. Representatives Scott and Levin cited the example of Patriot Coal which, according to their letter, transferred $62 million in Part C liabilities to the trust fund when it became insolvent. In addition, this letter claims that insolvent coal operators may be able to avoid trust fund liens by continuing to make benefit payments until after the court in their bankruptcy cases has approved the sale of their assets to another company. Because the original company was never in default of its payments, no lien was filed, and these assets were able to be purchased by another company without any lien or future liability to the trust fund. Congress may examine the issue of the impact of coal operator bankruptcies and the interaction of bankruptcy law and the BLBA's lien provisions, to strengthen both the federal government's ability to ensure that responsible operators are paying for benefits and reduce the benefit expenditures of the trust fund.

 

 Report 2:
Puerto Rico, which has approximately 3.3 million residents according to U.S. Census Bureau (Census) estimates, is the largest and most populous territory of the United States. As a territory, Puerto Rico is subject to congressional authority, though Congress has granted it broad authority over matters of internal governance—notably, by approving Puerto Rico’s constitution in 1952. Individuals born in Puerto Rico are U.S. citizens and can migrate freely to the states. Puerto Rico and its residents are generally subject to the same federal laws as the states and their residents, except in cases where specific exemptions have been made, such as with certain federal programs. For example, Puerto Rico residents generally have full access to Social Security and unemployment insurance; however, for some programs, such as Medicaid, federal funding in Puerto Rico is restricted as compared to funding in the states. Residents of Puerto Rico are exempt from paying federal income tax on income from sources in Puerto Rico. Residents are required to pay federal income tax on income from sources outside of Puerto Rico. They are also required to pay federal employment taxes, such as Social Security and Medicare taxes, on their income regardless of where it was earned. Puerto Rico residents are also ineligible for certain federal tax credits. Corporations located in Puerto Rico are generally subject to the same federal tax laws as corporations located in a foreign country. Corporations in Puerto Rico are generally exempt from federal taxes on profits except as such profits are effectively connected to a trade or business in the states, and so long as those profits remain held outside of the states. Additionally, these corporations were subject to a withholding tax on certain investment income from the United States not connected to a trade or business. Under the 2017 Public Law 115-97, starting in 2018 U.S. corporations that are shareholders in foreign corporations, such as those organized under Puerto Rico law, generally do not owe tax on dividends received from those foreign corporations. Prior to this law, dividend payments to U.S. corporate shareholders were considered taxable interest for the U.S. parent corporation. Prior to 1996, a federal corporate income tax credit—the possessions tax credit—was available to certain U.S. corporations that located in Puerto Rico. In general, the credit equaled the full amount of federal tax liability related to an eligible corporation’s income from its operations in a possession—including Puerto Rico—effectively making such income tax- free. In 1996, the tax credit was repealed, although corporations that were existing credit claimants were eligible to claim credits through 2005. Puerto Rico’s economy is in a prolonged period of economic contraction. According to data from Puerto Rico’s government, Puerto Rico’s economy grew in the 1990s and early 2000s. However, between 2005 and 2016— the latest year for which data were available as of March 1, 2018—Puerto Rico’s economy experienced year-over-year declines in real output in all but two years, as measured by real gross domestic product (GDP). From 2005 to 2016, Puerto Rico’s real GDP fell by more than 9 percent (from $82.8 billion to $75.0 billion in 2005 dollars). Puerto Rico’s gross national product (GNP) followed a similar pattern over the same period, declining by more than 11 percent from 2005 to 2016 (from $53.8 billion to $47.7 billion in 2005 dollars). Figure 1 shows Puerto Rico’s real GDP and GNP growth rates from 1991 through 2016. The decline in Puerto Rico’s output has, in more recent years, occurred in conjunction with a decline in Puerto Rico’s population. According to Census estimates, Puerto Rico’s population declined from a high of approximately 3.8 million people in 2004 to 3.3 million people in 2017, a decline of 12.8 percent. This population loss closely matched the decline in real output. From 2004 to 2016, Puerto Rico’s real GNP fell by 9.5 percent, while its real GNP per capita increased by 1.6 percent over the same time period. In addition to Puerto Rico’s declining population, the territory also has a lower share of employed persons compared to the United States as a whole. As of 2017, approximately 37 percent of Puerto Rico residents were employed compared to approximately 60 percent for the United States as a whole. Puerto Rico’s employment-to-population ratio reached highs in 2005 and 2006 when it was approximately 43 percent, according to data from the Federal Reserve Bank of St. Louis. According to data from the Bureau of Labor Statistics (BLS), between 2005 and 2017, Puerto Rico’s unemployment rate fluctuated between 10.2 percent and 17.0 percent, with an average of 13.1 percent. During the same period, the nationwide unemployment rate fluctuated between 4.1 percent and 10.0 percent, with an average of 6.5 percent. These factors have combined to leave Puerto Rico with a small and declining labor force. From January 2006 to December 2017—the latest month for which data were available as of March 1, 2018—Puerto Rico’s labor force decreased from approximately 1.4 million persons to 1.1 million persons, according to data from BLS. Puerto Rico’s government has operated with a deficit—where expenses exceed revenues—in each fiscal year since 2002, and its deficits grew over time (see figure 2). Puerto Rico’s governmental activities can be divided among the primary government and component units. Puerto Rico’s primary government provides and funds services such as public safety, education, health care, and economic development. Puerto Rico’s component units are legally separate entities for which its government is nonetheless financially accountable, and provide services such as public transportation, highways, electricity, and water. In fiscal year 2014, the latest for which audited financial data are available, the Puerto Rico government collected $32.5 billion in revenue, of which $19.3 billion was collected by the primary government, and $13.2 billion was collected by the component units. That year Puerto Rico’s government spent $38.7 billion, of which $22.0 billion was spent directly by the primary government, while $16.7 billion was spent by the government’s various component units. The Puerto Rico Electric Power Authority (PREPA), which operates the territory’s electricity generation and distribution infrastructure, represented the largest component unit expenditure in fiscal year 2014. Figures 3 and 4 show a breakdown of expenses for Puerto Rico’s primary government and its component units, respectively. Puerto Rico’s government spending accounts for more than a third of the territory’s GDP. In fiscal year 2014—the latest year for which audited spending data were available as of March 1, 2018—primary government expenditures of $22.0 billion represented 21 percent of the territory’s GDP. Including component spending, total public expenditures were $38.7 billion, which represented 38 percent of the territory’s GDP. By comparison, our prior work has shown that in 2014, total state and local government expenditures represented about 14 percent of GDP for the United States as a whole, excluding territories. Federal government expenditures were 20 percent of GDP for the United States as a whole in 2014. Puerto Rico’s total public debt as a share of its economy has grown over time. In 2002, the value of its debt was 42 percent of the territory’s GDP, and 67 percent of its GNP. Both of these ratios grew over time such that by 2014, Puerto Rico’s total public debt was 66 percent of the territory’s GDP and 99 percent of its GNP. Figure 5 compares Puerto Rico’s total public debt to its GDP and GNP, in both aggregate and per capita. As of the end of fiscal year 2014, the last year for which Puerto Rico issued audited financial statements, Puerto Rico had $67.8 billion in net public debt outstanding, or $68.1 billion excluding accounting adjustments that are not attributed in the financial statements to specific agencies. Of the $68.1 billion, $40.6 billion was owed by Puerto Rico’s primary government, and $27.6 billion was owed by its component units, as shown in figure 6 (these amounts do not sum to $68.1 billion because of rounding). The growth of Puerto Rico’s total debt resulted in greater annual debt servicing obligations. In fiscal year 2002, it cost Puerto Rico $2.7 billion to service its debt, representing about 12 percent of Puerto Rico’s $21.6 billion in total public revenue for that year. By fiscal year 2014, Puerto Rico’s annual debt service cost rose to $5.0 billion, representing just over 15 percent of Puerto Rico’s $32.5 billion in total public revenue for that year. Following years of expenditures that exceeded revenue, and a growing debt burden, in August 2015, Puerto Rico failed to make a scheduled bond payment. Since then, Puerto Rico has defaulted on over $1.5 billion in debt. In June 2016, Congress enacted and the President signed PROMESA in response to Puerto Rico’s fiscal crisis. PROMESA established a Financial Oversight and Management Board for Puerto Rico (Oversight Board), and granted it broad powers of fiscal and budgetary control over Puerto Rico. PROMESA also established a mechanism through which the Oversight Board could petition U.S. courts on Puerto Rico’s behalf to restructure debt. Under federal bankruptcy laws, Puerto Rico is otherwise prohibited from authorizing its municipalities and instrumentalities from petitioning U.S. courts to restructure debt. The Oversight Board petitioned the U.S. courts to restructure debt on behalf of Puerto Rico’s Highways and Transportation Authority and the Government Employees Retirement System on May 21, 2017 and on behalf of PREPA on July 2, 2017. In addition to its debt obligations, Puerto Rico also faces a large financial burden from its pension obligations for public employees. Puerto Rico’s public pension systems had unfunded liabilities of approximately $49 billion as of the end of fiscal year 2015, the most recent year for which data are available. Unfunded pension liabilities are similar to other kinds of debt because they constitute a promise to make a future payment or provide a benefit. Based on interviews with current and former Puerto Rico officials, federal officials, and other relevant experts, as well as a review of relevant literature, the factors that contributed to Puerto Rico’s financial condition and levels of debt related to: (1) Puerto Rico’s government running persistent deficits and (2) its use of debt to cope with deficits. As previously mentioned, Puerto Rico’s government has operated with a deficit in all years since 2002, and deficits grew over time. To cope with its deficits, Puerto Rico’s government issued debt to finance operations, rather than reduce its fiscal gap by cutting spending, raising taxes, or both. Through interviews with current and former Puerto Rico officials; federal officials; experts in Puerto Rico’s economy, the municipal securities markets, and state and local budgeting and debt management; as well as a review of relevant literature, we identified three groups of factors that contributed to Puerto Rico’s persistent deficits: (1) inadequate financial management and oversight practices, (2) policy decisions, and (3) prolonged economic contraction. Some of the factors in these groups may be interrelated. To cope with its persistent deficits, Puerto Rico issued debt to finance operations. In reviewing 20 of Puerto Rico’s largest bond issuances from 2000 to 2017, totaling around $31 billion, we found that 16 were issued exclusively to repay or refinance existing debt and to fund operations. According to ratings agency officials and experts in state and local government, states rarely issue debt to fund operations, and many states prohibit this practice. According to former Puerto Rico officials and experts on Puerto Rico’s economy, high demand for Puerto Rico debt and the Government Development Bank for Puerto Rico (GDB) facilitating rising debt levels enabled Puerto Rico to continue to use debt to finance operations. Puerto Rico issued a relatively large amount of debt, given the size of its population. Based on an analysis of fiscal year 2014 comprehensive annual financial reports of the 50 states and Puerto Rico, Puerto Rico had the second highest amount of outstanding debt among states and territories, while its population falls between the 29th and 30th most populous states. By comparison, California, the state with the largest amount of outstanding debt, is the most populated state. Various factors drove demand for Puerto Rico municipal bonds, even as the government’s financial condition deteriorated. Triple tax exemption: According to a former Puerto Rico official, Federal Reserve Bank of New York officials, and an expert on Puerto Rico’s economy, Puerto Rico’s municipal bonds were attractive to investors because interest on the bonds was not subjected to federal, state, or local taxes, regardless of where the investors resided. In contrast, investors may be required to pay state or local taxes on interest income earned from municipal securities issued by a state or municipality in which they do not reside. Investment grade bond ratings: Puerto Rico maintained investment grade bond ratings until February 2014, even as its financial condition was deteriorating. Credit ratings inform investment decisions by both institutional investors and broker dealers. According to a current Puerto Rico official and an expert on Puerto Rico’s economy, investment grade ratings for Puerto Rico municipal bonds may have driven demand for these securities in the states. Based on interviews with ratings agency officials and a review of rating agency criteria, we found that Puerto Rico may have maintained its investment grade rating for two reasons. First, Puerto Rico could not seek debt restructuring under federal bankruptcy laws, prior to the passage of PROMESA in 2016. According to rating agency officials, bonds with assumed bankruptcy protection tend to rate higher than those without such protection. Second, legal frameworks that prioritize debt service are often viewed as positive for credit ratings, according to rating agency criteria. In the event that the Puerto Rico government does not have sufficient resources to meet appropriations for a given fiscal year, Puerto Rico’s constitution requires that the government pay interest and amortization on the public debt before disbursing funds for other purposes in accordance with the order of priorities established by law. The prior Puerto Rico Governor cited this constitutional provision as providing the authority to redirect revenue streams from certain entities to the payment of general obligation debt. This redirection of revenue streams is commonly known as a clawback. Lack of transparency on its financial condition: Municipal market analysts told us that untimely financial information made it difficult for institutional and individual investors to assess Puerto Rico’s financial condition, which may have resulted in investors not being able to fully take the investment risks into account when purchasing Puerto Rico debt. According to one report, between 2010 and 2016 municipal issuers issued their audited financial statements an average of 200 days after the end of their fiscal years. However, between fiscal years 2002 and 2014, Puerto Rico issued its statements an average of 386 days after the end of its fiscal year, according to our analysis of Puerto Rico’s audited financial statements. Moreover, Puerto Rico had not issued its fiscal years 2015 and 2016 audited financial statements as of March 1, 2018, or 975 and 609 days after the end of those fiscal years, respectively. Estate tax structures: Puerto Rico residents had incentive to invest in municipal bonds issued in Puerto Rico over those issued in the United States because of federal and Puerto Rico estate tax structures. Current and former Puerto Rico officials told us that this incentive drove demand among Puerto Rico residents for bonds issued in Puerto Rico. For federal estate tax purposes, Puerto Rico residents are generally considered non-U.S. residents and non-citizens for all of their U.S.-based property, including investments. Estates of Puerto Rico residents are required to pay the prevailing federal estate tax— which ranges from 18 percent to 40 percent depending on the size of an estate—for any U.S.-based property valued over $60,000. In contrast, prior to 2017, all Puerto Rico-based property was only subject to the Puerto Rico estate tax of 10 percent. Puerto Rico’s estate tax was repealed in 2017. In addition to financing from the municipal bond markets, GDB also provided an intragovernmental source of financing. Prior to April 2016, GDB acted as a fiscal agent, trustee of funds, and intergovernmental lender for the Government of Puerto Rico. GDB issued loans to Puerto Rico’s government agencies and public corporations to support their operations. GDB provided loans to government entities valued at up to 60 percent of GDB’s total assets, as shown in Figure 11. In general, these entities did not fulfill the terms of their borrowing agreements with GDB, while they independently accessed the municipal bond market. Additionally, according to GDB’s audited financial statements, GDB did not reflect loan losses in its audited financial statements until 2014 because it presumed that Puerto Rico’s legislature would repay loans through the general fund or appropriations, as generally required by the acts that approved such loans. Facing non-repayment of public sector loans, GDB took on debt to maintain liquidity. According to GDB documents, repayment of amounts owed to GDB was a main reason for the creation of the Puerto Rico Sales Tax Financing Corporation (COFINA), an entity backed by a new sales tax, through which Puerto Rico issued some of its debt. Though initially intended as a means to repay GDB and other debt, COFINA bonds were also used to finance operations. Through our interviews and an assessment of relevant literature, we identified three potential federal actions that could help address some of the factors that contributed to unsustainable indebtedness in Puerto Rico. Consistent with the provision in PROMESA that was the statutory requirement for this work, we focused on actions that were non-fiscal in nature—that is, actions that would not increase the federal deficit. There are tradeoffs for policymakers to consider when deciding whether or how to implement any policy. For each action, we describe a specific challenge as it relates to debt accumulation in Puerto Rico, identify a possible federal response to the challenge, and describe other considerations for policymakers. To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, legislative and executive branch policymakers could further ensure that municipal securities issuers provide timely, ongoing, and complete disclosure materials to bondholders and the public. Specifically, Congress could authorize SEC to establish requirements for municipal issuers on the timing, frequency, and content of initial and continuing disclosure materials. In general, the municipal securities market is less regulated and transparent than other capital markets, such as equity markets. For example, SEC’s authority to directly establish or enforce initial and continuing disclosure requirements for issuers—including those in Puerto Rico—is limited. SEC requires that underwriters (sellers of municipal securities) reasonably determine that issuers have undertaken continuing disclosure agreements (CDA) to publicly disclose ongoing annual financial information, operating data, and notices of material events. However, federal securities laws do not provide SEC with the authority to impose penalties on municipal issuers for noncompliance with CDAs, which may limit any incentive for issuers to comply with SEC disclosure and reporting guidance. As a result, SEC has limited ability to compel issuers to provide continuing disclosure information. As previously discussed, the Puerto Rico government often issued its audited financial statements in an untimely manner, thus failing to meet its contractual obligations to provide continuing disclosures for securities it issued. SEC could not directly impose any consequences on Puerto Rico’s government for failing to adhere to the terms of, or enforce compliance with, the CDAs. Additionally, as previously discussed, municipal market analysts told us that untimely financial information made it difficult for institutional and individual investors to assess Puerto Rico’s financial condition. Timely disclosure of information would help investors make informed decisions about investing in municipal securities and help protect them against fraud involving the securities. These disclosures would be made to investors at the time of purchasing securities and throughout the term of the security, including when material changes to an issuer’s financial condition occur. According to SEC staff, enhanced authority could prompt more municipal issuers to disclose financial information, including audited financial statements, in a timelier manner. For example, SEC staff said that if the agency had required that issuers provide timely financial statements at the time of issuing a municipal security, this may have precluded Puerto Rico from issuing its $3.5 billion general obligation bond in 2014. However, any rulemaking SEC would or could take as a result of enhanced authority would depend on a number of factors, such as compliance with other SEC guidance and related laws. Since this action would apply to all U.S. municipal securities issuers, it has policy and implementation implications that extend well beyond Puerto Rico. For example, establishing and enforcing initial and continuing disclosure requirements for municipal securities issuers could place additional burdens on state and local issuers, and not all municipal issuers use standardized accounting and financial reporting methods. As a result, state and local governments may need to spend resources to adjust financial reporting systems to meet standardized reporting requirements. However, in a 2012 report proposing this action, SEC said it could mitigate this burden by considering content and frequency requirements that take into account, and possibly vary by, the size and nature of the municipal issuer, the frequency of issuance of securities, the type of municipal securities offered, and the amount of outstanding securities. To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, Congress could ensure that investors residing in Puerto Rico receive the same federal investor protections as investors residing in states. Specifically, Congress could subject all investment companies in Puerto Rico to the Investment Company Act of 1940, as amended (1940 Act). In recent years, the House and Senate separately have passed legislation that would achieve this action. Certain investment companies in Puerto Rico and other territories— specifically, those whose securities are sold solely to the residents of the territory in which they are located—are exempt from the 1940 Act’s requirements. The 1940 Act regulates investment companies, such as mutual funds that invest in securities of other issuers and issue their own securities to the investing public. It imposes several requirements on investment companies intended to protect investors. For example, it requires that investment companies register with SEC and disclose information to investors about the businesses and risks of the companies in which they invest, and the characteristics of the securities that they issue. It also restricts investment companies from engaging in certain types of transactions, such as purchasing municipal securities underwritten by affiliated companies. According to a former Puerto Rico official, some broker-dealers in Puerto Rico underwrote Puerto Rico municipal securities issuances and investment companies managed by affiliated companies of these underwriters purchased the securities, packaged them into funds, and marketed the funds to investors residing in Puerto Rico. This practice would be prohibited or restricted for investment companies subject to the 1940 Act, as it might result in investment companies not acting in the best interests of their investors. If all Puerto Rico investment companies had been subject to the 1940 Act, they would have been prohibited or restricted from investing in Puerto Rico municipal bonds underwritten by affiliated companies. Also, these investment companies may have further disclosed the risks involved in Puerto Rico municipal bonds to Puerto Rico investors. As a result, demand for Puerto Rico municipal bonds from Puerto Rico investment companies and residents may have been lower had the 1940 Act requirements applied to all Puerto Rico investment companies, and it may have been more difficult for the Puerto Rico government to issue debt to finance deficits. SEC staff told us that industry groups had raised objections to extending the 1940 Act provisions to all investment companies in Puerto Rico. These industry groups noted that, among other things, certain investment companies would have difficulty meeting the 1940 Act’s leverage and asset coverage requirements and adhering to some restrictions on affiliated transactions. However, SEC staff noted that under certain legislation that passed the House or Senate separately, as described above, Puerto Rico investment companies would have three years to come into compliance if they were newly subject to the 1940 Act. Further, under that legislation, after three years, investment companies in Puerto Rico could also request an additional three years to come into compliance. Regarding affiliated company restrictions, SEC has previously waived some requirements for investment companies if they are unable to obtain financing by selling securities to unaffiliated parties with an agreement to repurchase those securities at a higher price in the future, known as repurchase agreements. According to SEC staff, SEC would consider allowing companies in Puerto Rico to enter into reverse repurchase agreements with their affiliates if the 1940 Act applied to them. To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, Congress could remove the triple tax exemption for Puerto Rico’s municipal securities. This action would mean that interest income from Puerto Rico municipal securities earned by investors residing outside of Puerto Rico could be taxed by states and local governments, while still being exempt from federal income taxes, similar to the current tax treatment of municipal bond income in the states. As mentioned previously, former Puerto Rico officials and experts in municipal securities told us that the triple tax exemption fueled investor demand and enabled Puerto Rico to continue issuing bonds despite deteriorating financial conditions. Some of the demand for Puerto Rico municipal securities came from certain U.S. municipal bond funds. These funds concentrated their investments in one state to sell to investors within that state, but also included Puerto Rico bonds in their portfolios. Puerto Rico bond yields generally were higher than state bonds yields, according to industry experts. When added to a fund, the higher yields from Puerto Rico bonds would increase the overall return on investment yield of a fund. Modifying the triple tax exemption for Puerto Rico’s municipal securities might result in reduced demand for Puerto Rico’s debt. In response to reduced demand for its debt, Puerto Rico’s government may need to address any projected operating deficits by decreasing spending, raising revenues, or both. According to U.S. Treasury officials, this action could increase the proportionate share of investors in Puerto Rico debt that reside in Puerto Rico, because of reduced demand from investors in the states. In the event of a future debt crisis, this could result in a concentration of financial losses within Puerto Rico. Also, debt financing allows governments to make needed capital investments and provides liquidity to governments, and can be a more stable funding source to manage fiscal stress. Reduced market demand for Puerto Rico’s bonds could make access to debt financing difficult, as the Puerto Rico bond market may not support the Puerto Rico government’s future borrowing at reasonable interest rates, according to Treasury officials. Alternately, a variant of this action would be to retain the triple tax exemption for Puerto Rico debt only for bonds related to capital investments rather than for deficit financing, according to Treasury officials. Various provisions in PROMESA were intended to help Puerto Rico improve its fiscal condition. PROMESA requires that the Oversight Board certify fiscal plans for achieving fiscal responsibility and access to capital markets. The intent of the fiscal plans is to eliminate Puerto Rico’s structural deficits; create independent revenue estimates for the budget process; and improve Puerto Rico’s fiscal governance, accountability, and controls, among other things. From March 2017 to April 2017, the Oversight Board certified the fiscal plans the Government of Puerto Rico developed for the primary government and certain component units, such as PREPA. As a result of the effects of Hurricanes Irma and Maria, the Oversight Board requested that the Government develop updated fiscal plans. Although the Government of Puerto Rico developed and submitted updated fiscal plans, the Oversight Board did not certify them, with the exception of the plan for GDB. Instead, in April 2018, the Oversight Board certified fiscal plans it developed itself, as PROMESA allows. PROMESA also requires the Oversight Board to determine whether or not Puerto Rico’s annual budgets, developed by the Governor, comply with the fiscal plans prior to being submitted to Puerto Rico’s legislature for approval. Technical assistance is another area where the federal government has taken action to help Puerto Rico address its fiscal condition. In 2015, Congress first authorized Treasury to provide technical assistance to Puerto Rico, and has continued to reauthorize the technical assistance, most recently through September 30, 2018. For example, Treasury officials told us that they helped Puerto Rico’s Planning Board develop a more accurate macroeconomic forecast, which should enable Hacienda to develop more accurate revenue estimates and receipt forecasts. Treasury officials also told us that the agency began helping Puerto Rico improve its collection of delinquent taxes—for example, by helping Hacienda develop an office dealing with Puerto Rico’s largest and most sophisticated taxpayers, which are often multinational corporations. With Puerto Rico focused on hurricane recovery efforts, Treasury and the Puerto Rico government are reassessing the types of assistance that Treasury might provide in the future, according to Treasury officials. Current and former Puerto Rico government officials and experts on Puerto Rico’s economy also told us that the federal government could further help Puerto Rico address its persistent deficits through federal policy changes that are fiscal in nature. For example, it could change select federal program funding rules—at a cost to the federal government—such as eliminating the cap on Medicaid funding and calculating the federal matching rate similar to how the rate is calculated in the states. Likewise, the Congressional Task Force on Economic Growth in Puerto Rico (Congressional Task Force), as established by PROMESA, issued a report in December 2016 that recommended changes to federal laws and programs that would spur sustainable long- term economic growth in Puerto Rico, among other recommendations. In addition to federal actions that could address the factors that contributed to Puerto Rico’s fiscal condition and debt levels, the Puerto Rico government plans to take various actions. For example, according to current Puerto Rico officials and the Puerto Rico government’s April 2018 fiscal plan, the government is: Planning to implement an integrated new information technology system for financial management, to include modernized revenue management and accounting and payroll systems. Hacienda officials stated that they are in the process of developing a project schedule for this long-term effort. Developing a new public healthcare model in which Puerto Rico’s government pays for basic services and patients pay for premium services. The government will begin implementing the new healthcare model in fiscal year 2019 and expects to achieve annual savings of $841 million by fiscal year 2023. Collaborating with the private sector for future infrastructure and service projects, including for reconstruction efforts related to Hurricanes Irma and Maria, which it expects will stimulate Puerto Rico’s weakened economy. We also asked Puerto Rico officials about progress made toward addressing many of the factors we identified. However, they did not provide us this information. We provided a draft of this report for review to Treasury, SEC, the Federal Reserve Bank of New York, the Government of Puerto Rico, and the Oversight Board. Treasury and SEC provided technical comments, which we incorporated as appropriate. The Federal Reserve Bank of New York and the Oversight Board had no comments. We received written comments from the Government of Puerto Rico, which are reprinted in appendix II. In its comments, the Government of Puerto Rico generally agreed with the factors we identified that contributed to Puerto Rico’s financial condition and levels of debt. It also provided additional context on Puerto Rico’s accumulation of debt, such as Puerto Rico’s territorial status and its effect on federal programs in Puerto Rico and outmigration. The Government of Puerto Rico also noted that the federal actions we identified to address factors contributing to Puerto Rico’s unsustainable debt levels did not include potential actions that were fiscal in nature or that addressed Puerto Rico’s long-term economic viability. As we note in the report, we excluded fiscal actions from our scope, consistent with the provision in PROMESA that was the statutory requirement for this work. We excluded potential actions that could promote economic growth in Puerto Rico because these actions would address debt levels in Puerto Rico only indirectly and because the Congressional Task Force on Economic Growth in Puerto Rico already recommended actions for fostering economic growth in Puerto Rico in its December 2016 report. We are sending copies of the report to the appropriate congressional committees, the Government of Puerto Rico, the Secretary of the Treasury, the Chairman of the Securities and Exchange Commission, and other interested parties. In addition, this report is available at no charge on the GAO website at http://gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6806 or krauseh@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Our objectives were to describe (1) the factors that contributed to Puerto Rico’s financial condition and levels of debt; and (2) federal actions that could address the factors that contributed to Puerto Rico’s financial condition and levels of debt. Consistent with the provision in the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) that was the statutory requirement for this work, we focused on actions that would not increase the federal deficit. For both objectives we interviewed current Puerto Rico officials from several agencies—the Puerto Rico Department of Treasury (Hacienda in Spanish), Government Development Bank for Puerto Rico (GDB), the Puerto Rico Office of Management and Budget (Spanish acronym OGP), Fiscal Agency and Financial Advisory Authority (FAFAA), and the Puerto Rico Electric Power Authority. We also interviewed 13 former Puerto Rico officials that held leadership positions at Hacienda, GDB, or OGP, or a combination thereof. These former officials served between 1997 and 2016 for various gubernatorial administrations associated with the two political parties in Puerto Rico that held the governorship during that period. We also interviewed officials from the U.S. Department of the Treasury (Treasury), the Securities and Exchange Commission (SEC), the Federal Reserve Bank of New York, and the Financial Oversight and Management Board for Puerto Rico (created by PROMESA). Additionally, we conducted another 13 interviews with experts on Puerto Rico’s economy, the municipal securities markets, state and territorial budgeting and debt management—including credit rating agencies—and with select industry groups in Puerto Rico. We selected the experts we interviewed based on their professional knowledge closely aligning with our engagement objectives, as demonstrated through published articles, congressional testimonies, and referrals from agency officials or other experts. To describe the factors that contributed to Puerto Rico’s financial condition and levels of debt, we reviewed our prior work related to Puerto Rico’s financial condition and levels of public debt. We also collected and analyzed additional financial data from Puerto Rico’s audited financial statements for the fiscal years 2002 to 2014, the last year for which audited financial statements were available. To determine how the Puerto Rico government used bond proceeds, we reviewed a nongeneralizable sample of Puerto Rico bonds prospectuses issued between 2000 and 2017 from the Electronic Municipal Market Access database of the Municipal Securities Rulemaking Board. We reviewed literature—including academic reports, congressional hearing transcripts, and credit rating agency reports—that described Puerto Rico’s economy and factors that contributed to Puerto Rico’s levels of debt. We also reviewed credit rating agency reports that described Puerto Rico’s municipal debt and the agencies’ methodologies for rating municipal debt. We also collected and reviewed Puerto Rico government documents related to budget formulation and execution, debt issuance, and financial management. We considered factors to include, but not be limited to, macroeconomic trends, federal policies, and actions taken by Puerto Rico government officials. Our review focused largely, though not exclusively, on conditions that contributed to the debt crisis during those years for which we collected financial data on Puerto Rico, fiscal years 2002 to 2014. Finally, we also conducted a thematic analysis of the summaries of our interviews to identify common patterns and ideas. Although these results are not generalizable to all current and former officials and experts with this subject-matter expertise, and do not necessarily represent the views of all the individuals we interviewed, the thematic analysis provided greater insight and considerations for the factors we identified. To describe federal actions that could address the factors that contributed to Puerto Rico’s financial condition and levels of debt, we reviewed our prior reports and documents from Treasury and SEC, conducted a literature review, and conducted various interviews. Specifically, we met with federal agencies with subject-matter expertise or whose scope of responsibilities related to these actions, as well as with current and former Puerto Rico officials and municipal securities experts. Consistent with PROMESA, we omitted from our scope: (1) actions that could increase the federal deficit (i.e., fiscal options), (2) actions that could be taken by the Puerto Rico government, (3) actions that could infringe upon Puerto Rico’s sovereignty and constitutional parameters, and (4) actions that would imperil America’s homeland and national security. We considered actions that could promote economic growth in Puerto Rico as outside of scope, as they could address debt levels in Puerto Rico indirectly, rather than directly, and because a study issued by the Congressional Task Force on Economic Growth in Puerto Rico already identified actions that Congress and executive agencies could take to foster economic growth in Puerto Rico. We also considered actions that could address Puerto Rico’s unfunded pension liability as outside of our scope. The actions we identified may also help avert future unsustainable debt levels in other territories; however, we did not assess whether and how each action would apply to other territories. We conducted this performance audit from January 2017 to May 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Jeff Arkin (Assistant Director), Amy Radovich (Analyst in Charge), Pedro Almoguera, Karen Cassidy, Daniel Mahoney, A.J. Stephens, and Justin Snover made significant contributions to this report.

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

Answer: The federal government pays benefits to coal miners affected by coal workers' pneumoconiosis (CWP, commonly referred to as black lung disease) and other lung diseases linked to coal mining in cases where responsible mine operators are not able to pay. In 2019, the monthly benefit for a miner with no dependents is $660.10. Benefits can be as much as $1,320.10 per month for miners with three or more dependents. Medical benefits are provided separately from disability benefits. Benefit payments and related administrative expenses in cases in which the responsible operators do not pay are paid out of the Black Lung Disability Trust Fund. The primary source of revenue for the trust fund is an excise tax on coal produced and sold domestically. If excise tax revenue is not sufficient to finance Black Lung Program benefits, the trust fund may borrow from the general fund of the Treasury. For 2018, the tax rates on coal were $1.10 per ton of underground-mined coal or $0.55 per ton of surface-mined coal, limited to 4.4% of the sales price. These rates were established in 1986. Starting in 2019, under current law, these tax rates are $0.50 per ton of underground-mined coal or $0.25 per ton of surface-mined coal, limited to 2% of the sales price. These are the rates that were set when the trust fund was established in 1977. The decline in the excise tax rates will likely put additional financial strain on a trust fund that already borrows from the general fund to meet obligations. The decline in domestic coal production, recent increases in the rate of CWP, and bankruptcies in the coal sector also contribute to the financial strain on the trust fund. The Black Lung Disability Trust Fund and associated excise tax on coal were established so that the coal industry, as opposed to taxpayers in general, would bear the burden associated with providing black lung benefits. Throughout its history, the Black Lung Disability Trust Fund has not raised revenues sufficient to meet obligations. As a result, at various points in time, Congress and the President have acted to increase the excise tax on coal, forgive or refinance trust fund debt, and modify black lung benefits eligibility. With the rate of the excise tax on coal reduced in 2019, the 116th Congress may again evaluate options for improving the fiscal condition of the Black Lung Disability Trust Fund, or other issues related to providing federal benefits to miners with black lung disease.